High Margins, Lower Price: Is Texas Instruments Stock a Buy?
Texas Instruments (TXN) stock deserves your consideration. Why? Because you get high margins – reflective of pricing power and cash generation capacity – for a discounted price. Here is some data.
- Revenue Growth: Texas Instruments saw growth of 9.9% LTM and -4.6% last 3 year average, but this is not a growth story
- Recent Profitability: Nearly 39.9% operating cash flow margin and 34.8% operating margin LTM.
- Long-Term Profitability: About 38.6% operating cash flow margin and 38.0% operating margin last 3 year average.
- Available At Discount: At P/S multiple of 8.5, TXN stock is available at a 26% discount vs 1 year ago.
While revenue growth helps, this is not a growth perspective. Pricing power and high margins generate consistent, predictable profits and cash flows, which reduce risk and allow capital to be reinvested. Market tends to reward that.
As a quick background, Texas Instruments provides semiconductors including power management solutions and microcontrollers for electronics designers and manufacturers across Analog and Embedded Processing segments.
| TXN | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Semiconductors | – |
| PS Ratio | 8.5 | 3.2 |
| PE Ratio | 29.1 | 23.6 |
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| LTM* Revenue Growth | 9.9% | 5.4% |
| 3Y Average Annual Revenue Growth | -4.6% | 5.2% |
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| LTM* Operating Margin | 34.8% | 18.7% |
| 3Y Average Operating Margin | 38.0% | 18.2% |
| LTM* Op Cash Flow Margin | 39.9% | 20.3% |
| 3Y Average Op Cash Flow Margin | 38.6% | 19.9% |
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| DE Ratio | 9.6% | 20.9% |
*LTM: Last Twelve Months
But do these numbers tell the full story? Read Buy or Sell TXN Stock to see if Texas Instruments still has an edge that holds up under the hood.
Portfolio beats stock-picking every time. Consider what could long-term performance for your portfolio be if you combined 10% commodities, 10% gold, and 2% crypto with equities.
Stocks Like These Can Outperform. Here Is Data
Here is how we make the selection: We consider stocks > $10 Bil in market cap, and then filter out those with high CFO (cash flow from operations) margins or operating margins. We additionally consider only those stocks that have meaningfully declined in valuation over the past 1 year.
Below are statistics for stocks with this selection strategy applied since 12/31/2016.
- Average 12-month forward returns of nearly 19%
- 12-month win rate (percentage of picks returning positive) of about 72%
But Consider The Risk
Texas Instruments isn’t immune to big drops. It plunged 77% in the Dot-Com crash and 64% during the Global Financial Crisis. Even in less severe sell-offs—like the 2018 correction, Covid pandemic, and inflation shock—it still fell around 25-30%. Solid fundamentals matter, but when the market turns, TXN can take a serious hit.
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 – the S&P 500, S&P mid-cap, and Russell 2000 indices. 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.