Key points
- Cirrus Logic’s shares lagged those of its larger rivals last year, but that’s set to change.
- This week’s earnings caught investors by surprise in the best way possible.
- The stock is already approaching last year’s all-time high and appears to have good value to continue moving forward.
- 5 titles we like best from Cirrus Logic
With so much talk about semiconductor stocks being dominated by the likes of NVIDIA Corp NASDAQ:NVDA, Advanced microdynamics NASDAQ:AMD, and the like, it’s easy to think that there aren’t many small-cap chip stocks out there. However, even with a market cap of less than $5 billion, compared to NVIDIA’s $1.7 trillion, Cirrus Logic, Inc. NASDAQ: CRUS he can still punch.
It rode the artificial intelligence (AI)-inspired boom in chip stocks a year ago, but then underperformed many of its larger peers during the fall. A year-end rally of the order of 30% showed the potential it had, and this is a theme that was developed with yesterday’s 15% jump.
The latest catalyst for the rally was the company’s fiscal third-quarter earnings, released Tuesday evening. Cirrus managed to beat analysts’ expectations for both key numbers, with revenue hitting a record high along with its best-ever EPS result of $2.57.
Bullish outlook
Beyond the pace of the big numbers, the company’s forward guidance has also proven attractive, which in itself can be a major driver of the stock price’s upward momentum. He says in effect that the market has undervalued a stock based on future expectations that have now been raised by the company itself. It’s one of the most bullish signals a company can give, and it’s no surprise that investors were impressed.
They have also been impressed by what they see as a higher level of execution from senior leaders. Starting 2024 with higher revenue and EPS is exactly what investors would have been looking for, and bodes well for Cirrus’ prospects in the months ahead. Significant milestones have been achieved regarding the production of next-generation audio components, while the company has also made significant progress in its process technology and foundry strategy.
It has also seen strong customer engagement with its laptop solutions and has pursued several research and development programs in the area of high-performance mixed signals. CEO John Forsyth highlighted all this and highlighted the company’s strong product roadmap, which he believes will propel the stock to further gains through 2024 and beyond.
Previous concerns about the company’s reliance on the Apple company NASDAQ:AAPLwhich as a customer was responsible for more than 80% of Cirrus’ revenue, are continuing to dissipate, with Forsyth opening up more Android-centric revenue channels and diversifying the company’s overall revenue.
High expectations
So, how far can Cirrus rally from here? Well, there have been several major updates from analysts in recent days, who have increased their price targets accordingly. Susquehanna and TD Cowen, for example, both came out bullish on the stock, each giving it a new $100 price target. Even including yesterday’s increase, that still indicates further upside of more than 10%. If Cirrus stock can hit that target in the next few weeks, it would be within striking distance of last April’s all-time high, and you’d have to think it would have good value to keep going.
The risk-on sentiment dominating stocks right now is simply too positive to ignore, largely due to the growing consensus that the Fed has managed a soft landing. Inflation data continues to cool and expectations for an end to rate hikes, and perhaps even a cut, are growing. While the relative strength index (RSI) for Cirrus stock stands at 70, suggesting the stock is overbought, it is nowhere near high enough to be a cause for concern at this time.
With the semiconductor industry as a whole recovering from a difficult couple of years, and with Cirrus hitting record revenue and earnings numbers, there’s still plenty of upside momentum to show before investors turn cautious.
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