Cirrus Logic, Inc. CRUS stock has declined 19.3% in the past month, underperforming its sub-industry and the Zacks Computer and Technology sector’s decline of 7.8% and 0.9%, respectively. The S&P 500 Index has returned 0.6% in the same period. The stock has taken a beating (down 8.7%) after reporting second-quarter fiscal 2025 results on Nov. 4.

One-Month Price Performance Chart

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Recent investor concerns are mainly due to lower-than-expected guidance for the current quarter. Management projects revenues between $480 million and $540 million. This implies a year-over-year decline of 17.6% at the midpoint. This can be attributed (to an extent) to one less week in the quarter compared to last year. The September quarter included one more week of higher volume production associated with typical seasonal product ramps.

Closing at $101.06 as of yesterday’s trading session, CRUS stock is currently trading 31.5% below its 52-week high of $147.46 attained on Aug. 29, 2024.

Is the recent decline in CRUS stock a buying opportunity for investors? Let’s dive into CRUS prospects and determine your portfolio's best course of action.

Heavily Reliant on Apple for Top-Line Expansion

Customer concentration is a major concern for Cirrus Logic. The company is heavily reliant on Apple AAPL for its top-line expansion. It generated approximately 87% of its revenues in fiscal 2024 through selling audio chips used in iPhone devices. Any decline in iPhone sales is likely to pose a key threat to its top-line results.

Overall, CRUS’ significant exposure to the smartphone market is concerning. Smartphone volume growth can be affected by seasonality and supply chain risks. This can affect CRUS’ performance.

Increasing Expenses Can Affect CRUS Margins

In the last reported quarter, Cirrus Logic’s non-GAAP operating expenses rose 10.8% year over year to $126.8 million due to increasing variable compensation, employee-related costs and rising product development costs.

The company expects combined GAAP R&D and SG&A to be between $148 million and $154 million, respectively. This includes $22 million in stock-based compensation expense and $2 million in amortization of acquisition intangibles. Thereby, non-GAAP operating expenses are forecast to be between $124 million and $130 million, up from $125.6 million reported in the prior-year quarter.

Though investments in product development are vital for long-term growth, increasing expenses can squeeze margins, particularly if revenues from new products or diversification into new markets (like laptops and power products) do not materialize as per expectations.

Also, CRUS faces intense competition from various semiconductor suppliers like AKM Semiconductor, Analog Devices ADI, and Texas Instruments TXN. Intense competition can put pressure on profitability

Estimate Southbound, Bearish Technical Indicators for CRUS

In the past 60 days, analysts have decreased their earnings estimates for the current quarter and the next quarter by 5% and 6.4% to $2.08 and $1.03 per share, respectively. The same for the current year and the next year has been revised down by 0.8% and 3%, respectively.

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CRUS’ technical indicators suggest that further downside could be ahead. The stock has been trading below both the 50-day and 100-day moving averages, indicating that investors may be losing confidence in the stock. Negative technical indicators suggest that CRUS may face more volatility in the near term.

CRUS Trading Below 50-Day & 100-Day Averages

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Analyzing CRUS’ Core Strengths

Growing momentum in the laptop market and increasing win designs with customers on next-generation flagship smartphones bode well. During the fiscal second quarter, Cirrus Logic began shipping its latest custom boosted amplifier and introduced its first 22-nanometer smart codec in recently launched smartphone models.

In addition to its consolidating its presence in the smartphone audio space, Cirrus Logic has been expanding its reach into the laptop market, securing its first high-volume, mainstream design win for its PC codec. Moreover, the company has begun shipping its first power product in multiple devices for tier-one customers.

Cirrus Logic is also striving to expand its footprint beyond audio and into high-performance mixed-signal solutions space, especially in the smartphone market. The company’s camera controller product line has witnessed success since launch in 2020. The new smartphone launches have favored a more favorable product mix, enhancing revenue from Cirrus Logic’s camera controllers.

Cirrus Logic is investing in advanced power sensing and battery technologies, which could represent significant growth opportunities areas as the smartphone market is increasingly prioritizing battery efficiency and power management.

Strong Balance Sheet: A Safety Net for Investors?

Cirrus Logic is a cash-rich company with a strong balance sheet. As of Sept. 28, 2024, the company had cash and cash equivalents and marketable securities of $478.3 million with no long-term debt. In the fiscal second quarter, Cirrus Logic generated $8.2 million of net cash from operations. In the prior-year quarter, it utilized $22.7 million of net cash from operations. Free cash flow was $5.5 million in the quarter under review.

Ample free cash flow generation enables the company to reinvest in innovation, acquisitions, or return capital to shareholders through stock buybacks.

The company repurchased 356,432 shares worth $50 million in the reported quarter. As of Sept. 28, 2024, it had $224.1 million worth of shares under its existing share repurchase authorization. Share repurchases are a good way of enhancing its shareholders’ wealth while boosting the company’s earnings. The company’s ability to generate solid cash flows is expected to help it sustain current share repurchases, at least in the near term.

CRUS Trades at a Discount

CRUS stock is trading at a discount with forward 12-month Price/earnings multiple of 15.32 compared with the industry’s multiple of 30.24.

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Are CRUS Shares Worth Investing Now?

CRUS’ focus on its smartphone audio business, efforts to expand into high-performance mixed-signal functionality in smartphones, and penetrating new markets like laptops and power sensing is crucial for long-term growth. Compelling valuation and a strong balance sheet are other tailwinds.

However, rising operating expenses in a competitive landscape, as well as heavy reliance on a single customer for top-line growth, keep us on the sidelines. Cautious guidance for revenue growth in the current quarter suggests a more conservative outlook than investors might have hoped for, as evidenced by significant downward estimate revisions. Also, expansion and diversification into new markets may take time to materialize, which could put pressure on profitability in the near term.

Consequently, it might not be a prudent investment decision to bet on the stock, which carries a Zacks Rank #3 (Hold) at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CRUS has a Growth Score of F and a Momentum Score of D, which makes the stock unattractive for both growth and momentum-focused investors.

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