Why Cirrus Logic, Inc. (NASDAQ:CRUS) Could Be Worth Watching

While Cirrus Logic, Inc. (NASDAQ:CRUS) might not have the largest market cap around , it received a lot of attention from a substantial price increase on the NASDAQGS over the last few months. The company's trading levels have reached its high for the past year, following the recent bounce in the share price. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Today we will analyse the most recent data on Cirrus Logic’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Cirrus Logic

What Is Cirrus Logic Worth?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 25.14x is currently trading slightly below its industry peers’ ratio of 27.89x, which means if you buy Cirrus Logic today, you’d be paying a reasonable price for it. And if you believe Cirrus Logic should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like Cirrus Logic’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Cirrus Logic?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a negative profit growth of -2.5% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Cirrus Logic. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, CRUS appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on CRUS, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on CRUS for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on CRUS should the price fluctuate below the industry PE ratio.

If you'd like to know more about Cirrus Logic as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Cirrus Logic, and understanding this should be part of your investment process.

If you are no longer interested in Cirrus Logic, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.