Now is not the time to buy NXP Semiconductors stock

We believe there are a few things to fear in NXPI stock given its overall Weak operating performance and financial condition. In addition, keeping in mind its High valuation, we think that the stock is Unattractive. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $57 Bil in market cap, NXP Semiconductors provides semiconductor products for automotive, industrial, IoT, mobile, and communication infrastructure applications across multiple global markets.

[1] Valuation Looks High

This table highlights how NXPI is valued vs broader market. For more details see: NXPI Valuation Ratios

[2] Growth Is Very Weak

• NXP Semiconductors has seen its top line shrink at an average rate of -0.4% over the last 3 years
• Its revenues have fallen -7.5% from $13 Bil to $12 Bil in the last 12 months
• Also, its quarterly revenues declined -6.4% to $2.9 Bil in the most recent quarter from $3.1 Bil a year ago.

This table highlights how NXPI is growing vs broader market. For more details see: NXPI Revenue Comparison

[3] Profitability Appears Strong

• NXPI last 12 month operating income was $3.1 Bil representing operating margin of 25.6%
• With cash flow margin of 20.7%, it generated nearly $2.5 Bil in operating cash flow over this period
• For the same period, NXPI generated nearly $2.1 Bil in net income, suggesting net margin of about 17.7%

This table highlights how NXPI profitability vs broader market. For more details see: NXPI Operating Income Comparison

[4] Financial Stability Looks Very Strong

• NXPI Debt was $11 Bil at the end of the most recent quarter, while its current Market Cap is $57 Bil. This implies Debt-to-Equity Ratio of 19.0%
• NXPI Cash (including cash equivalents) makes up $2.9 Bil of $25 Bil in total Assets. This yields a Cash-to-Assets Ratio of 11.4%

[4] Downturn Resilience Is Very Weak

NXPI has fared much worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• NXPI stock fell 42.2% from a high of $238.90 on 7 December 2021 to $138.09 on 14 October 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 22 February 2024
• Since then, the stock increased to a high of $290.78 on 16 July 2024 , and currently trades at $223.93

 
2020 Covid Pandemic

• NXPI stock fell 53.5% from a high of $138.69 on 13 February 2020 to $64.56 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 9 October 2020

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read NXPI Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.