CSR - a value trap?

For a few hours on Wednesday morning this week the CSR share price dipped below 600p. This is quite extraordinary seeing as for a day in July it peaked above 900p and nothing very bad has happened in the meantime. Someone somewhere is really not sure what to make of CSR.

Obviously the recent fall has a lot to do with the current market uncertainty and as a technology stock on a higher PE than the market CSR gets punished more than most.

So is it a bargain now? Probably - but maybe not of the back-up-the-truck variety.

CSR's guidance is certainly rosy with revenue predicted to rise by 15 to 20% over the next 5 years. The problem is that CSR management have been over-optimistic before - most notably last year when they had to give two profit warnings as revenue ended up being nowhere near their guidance.

The other problem is that costs are increasing rapidly as CSR has made a number of acquisitions that are not helping the bottom line.

However I think CSR is right to invest in other wireless technologies like WIFI, GPS and UWB. By integrating several wireless solutions on one chip CSR can provide a cheap and differentiated product.

So revenue growth looks good at the moment but cost growth is significant as CSR invest in the future.

EPS for Q2 2007 was $0.25. EPS for Q3 should be significantly higher due to the seasonality of the business. If CSR makes 45p per share this year it is currently on a 2007 PE of 14. Tesco is on a 2007 PE of 17 and is growing at a mere 12% clip.

So CSR does look nice. Unfortunately it has already jumped back up to 640p but there may still be a chance of a quick 10% at these levels.