Cirrus Logic Inc (NASDAQ:CRUS) Stands Out as a Strong Undervalued Stock with Solid Fundamentals

Cirrus Logic Inc (NASDAQ:CRUS) has been recognized through a "Decent Value" screening method, focusing on stocks with solid fundamental valuations alongside reasonable profitability, financial stability, and growth potential. This method follows value investing principles, targeting companies trading below their true worth but with strong foundational metrics. The strategy selects stocks with a ChartMill Valuation Rating above 7, confirming they are priced well compared to their financial results, while also needing good scores in profitability, stability, and growth to steer clear of value traps.

Why CRUS Is a Notable Undervalued Stock

1. Solid Valuation Metrics

The ChartMill Valuation Rating for CRUS is 7 out of 10, showing it is priced well compared to its industry competitors. Key points from the fundamental analysis report include:

• A Price/Earnings (P/E) ratio of 13.08, much lower than the S&P 500 average of 26.51 and more affordable than 91.82% of semiconductor industry peers.
• A Price/Forward Earnings ratio of 13.29, also below the sector average, highlighting its undervaluation.
• An Enterprise Value/EBITDA ratio that is better than 87.27% of competitors, further confirming its discounted price.

For value investors, these metrics indicate CRUS is priced below its earnings potential, offering a safety net—a core principle of value investing.

2. Outstanding Financial Stability

CRUS has a perfect Health Rating of 10/10, reflecting a strong balance sheet:

• No debt, removing solvency concerns and placing it ahead of most in its industry.
• A Current Ratio of 6.35 and a Quick Ratio of 4.82, showing it has enough liquidity to cover short-term needs—better than 86.36% and 82.73% of peers, respectively.
• An Altman-Z score of 10.45, suggesting very low bankruptcy risk and financial strength.

A stable financial position is vital for value investors, as it lowers the chance of unexpected liabilities reducing the company's true worth.

3. Strong Profitability

With a Profitability Rating of 8/10, CRUS shows consistent earnings ability:

• Return on Assets (14.25%) and Return on Equity (17.01%) rank in the top 87.27% and 83.64% of the semiconductor sector, respectively.
• A Profit Margin of 17.48% and Operating Margin of 21.64%, both increasing year-over-year and better than 80% of industry peers.
• A Gross Margin of 52.53%, above the industry median, showing pricing strength and cost control.

Profitability is key for value investing, as it ensures the company can maintain and increase its true worth over time.

4. Steady, Though Modest, Growth

While CRUS’s Growth Rating of 4/10 is less impressive, it still displays positive trends:

• EPS growth of 12.62% over the past year and a 3-year average annual EPS growth of 13.60%.
• Revenue growth of 5.99% YoY, with a 3-year average annual growth of 8.16%.
• Future growth projections are modest (1.73% EPS growth and 3.64% revenue growth), but the company’s strong profitability and financial stability ease worries about slower expansion.

Value investors often favor reliability over rapid growth, making CRUS’s consistent performance a reasonable trade-off for its undervaluation.

Conclusion: A Strong Value Option

Cirrus Logic Inc offers a strong case for value investors, pairing an appealing valuation with high profitability, excellent financial stability, and steady growth. Its low P/E and debt-free position provide a safety cushion, while its strong returns on capital point to effective management. While future growth may not be dramatic, the company’s fundamentals make it worth considering for a value-focused portfolio.

For investors looking for similar opportunities, more undervalued stocks can be found using the Decent Value Stocks screen.

Disclaimer: This article is not investment advice. Always conduct your own research or consult a financial advisor before making investment decisions.