Fortune has released its list of the eight fastest-growing technology companies. Second on the list is Cirrus Logic (NASDAQ:CRUS), which enjoyed 340% annualized earnings per share growth, thanks largely to its audio controller chips that account for 70% of its revenues.

But does rapid EPS growth mean Cirrus Logic stock is a sensible investment? Here are three reasons to consider it:

• Very low valuation. Cirrus Logic’s price/earnings-to-growth ratio of 0.25 (where a PEG of 1.0 is considered fairly priced) means its stock price is cheap. It currently has a P/E of 5.3, and its earnings per share are expected to grow 21.4% to $1.38 in fiscal 2013.
• Increasing sales and profits — and decent balance sheet. Cirrus Logic has been increasing sales and profits. Its revenue has increased at a 19.4% annual rate, from $182 million (2007) to $370 million (2011), while its net income has soared at a 64.3% rate, from $28 million (2007) to $204 million (2011) — yielding a whopping 55% net profit margin due in part to a big tax credit. Cirrus Logic’s cash has fallen but it has almost no debt — a mere $288,000. Specifically, its cash fell at a 7.2% annual rate, from $266 million (2007) to $197 million (2011).
• Out-earning its cost of capital. Cirrus Logic is earning more than its cost of capital — and it’s making big progress. How so? It’s producing positive EVA Momentum, which measures the change in “economic value added” (essentially, after-tax operating profit after deducting capital costs) divided by sales. In 2011, Cirrus Logic’s EVA momentum was 16%, based on 2010 revenue of $221 million, and EVA that rose from 2010’s $3 million to 2011’s $39 million, using a 10% weighted average cost of capital. One reason not to invest:

One reason to avoid the stock:

• Poor earnings reports. Cirrus Logic has only been able to beat analysts’ expectations in two out of its past five earnings reports.

Cirrus Logic stock is at a low PEG, and its actual earnings growth has been very high. But its high margins depend to a large extent on tax credits, and it does not always exceed earnings expectations — something that makes investors nervous. Nevertheless, as long as demand for its audio controller chip continues to rise, Cirrus Logic could make sense for your portfolio.

Peter Cohan has no financial interest in the securities mentioned.