Over the last six months, Texas Instruments’s shares have sunk to $181.46, producing a disappointing 9.1% loss - a stark contrast to the S&P 500’s 13.6% gain. This might have investors contemplating their next move.
Is now the time to buy Texas Instruments, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.
Why Is Texas Instruments Not Exciting?
Even with the cheaper entry price, we don't have much confidence in Texas Instruments. Here are three reasons there are better opportunities than TXN and a stock we'd rather own.
1. Revenue Tumbling Downwards
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Texas Instruments’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.4% annually. 
2. Shrinking Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Analyzing the trend in its profitability, Texas Instruments’s operating margin decreased by 13.5 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 34.3%.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Texas Instruments’s margin dropped by 28.5 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because of its relatively low cash conversion. If the longer-term trend returns, it could signal it’s becoming a more capital-intensive business. Texas Instruments’s free cash flow margin for the trailing 12 months was 12%.
Final Judgment
Texas Instruments isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 30.7× forward P/E (or $181.46 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now. We’d recommend looking at the most entrenched endpoint security platform on the market.
Stocks We Would Buy Instead of Texas Instruments
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