Two-Minute Analysis Of Texas Instruments’ Stock

Two-Minute Analysis Of Texas Instruments’ Stock
Carl Hazeley

over 1 year ago2 mins

Mentioned in story

According to Google Trends data, tech hardware giant Texas Instruments (TXN) has seen a huge increase in searches in the past month compared to the month before. Three minutes of analysis using the Markets tab could help you quickly see why people are interested in it – and whether it’s worth paying attention to.

Value: is Texas Instruments cheap or expensive?

Texas Instruments trades at an enterprise value-to-sales (EV/sales) multiple of 7.7x, in line with its five-year average of 8.1x and above the S&P 500’s 3.8x. It’s got a price-to-earnings (P/E) ratio of 18x, versus the market’s 20x. And it offers a free cash flow yield of just 4.1%, in line with the market’s 3.9%.

Conclusion: Texas Instruments is neither much more or much less expensive than the market overall based on its P/E and free cash flow yield. However, its sales multiple is higher than the market and not far below its recent average, which could make it appear expensive given the selloff in stocks this year.

Quality: are Texas Instruments’s fundamentals strong?

Texas Instruments has grown sales an average of 6.5% in the past five years – slightly slower than other US firms, which averaged 7.6%. But Texas Instruments’s average profit margin of 43% in the past five years (and 53% currently) is much higher than the US average of 18%.

Conclusion: Texas Instruments has shown steady (if unspectacular) sales growth but arguably more than makes up for it with its high profit margins.

Risk: just how risky is Texas Instruments?

Texas Instruments’s beta of 1 means it tends to move up and down in line with the wider market. The stock’s volatility is close to the market’s too, suggesting the shares will move about as violently as the US stock market in general. And arguably it’s slightly less risky than the average S&P 500 company: Texas Instruments has cash on its balance sheet compared to the average US company, which is slightly indebted.

Conclusion: Texas Instruments looks slightly less risky than the average US stock, which could be attractive to risk-averse investors.

Sentiment: what do other investors think about Texas Instruments?

Investment bank analysts, on average, rate Texas Instruments’s shares a “hold”, meaning they’re neither particularly positive or negative on it right now. On the positive side, our measure of insider buying is encouraging: execs connected with Texas Instruments are buying up shares in the company, suggesting they’re feeling more optimistic.

Conclusion: investment bank analysts are pretty neutral on Texas Instruments’s shares, but the company’s executives aren’t – their insider buying activity suggests they see good things happening.

Should you consider buying Texas Instruments?

Overall, Texas Instruments screens as attractive and certainly worthy of further analysis: valuation metrics show the shares aren’t cheap, but strong fundamentals accompanied by low risk versus other US stocks suggest investors might view Texas Instruments as a “quality” stock that could continue to deliver sales and earnings growth throughout an economic downturn.



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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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