Texas Instruments Stock Gains 5%. Is It A Buy?
Texas Instruments (NASDAQ:TXN) stock gained about 5% in Wednesday’s trading, after positive results from peer Analog Devices drove semiconductor stocks higher on Wednesday. TI also posted better than expected revenues for Q4 2024 last month, indicating that sales fell by just about 2%, which was better than guidance. This is a sign that the analog semiconductor market – which has faced headwinds in recent quarters – could be close to turning around.
However, despite the signs of a comeback in the market, Texas Instruments stock looks relatively expensive – making it a expensive pick to buy at its current price of around $195. We believe there are some minor concerns with TXN stock, which makes it relatively expensive given that its current valuation looks very high.
We arrive at our conclusion by comparing the current valuation of TXN stock with its operating performance over the recent years as well as its current and historical financial condition. Our analysis of Texas Instruments along key parameters of Growth, Profitability, Financial Stability, and Downturn Resilience shows that the company has a strong operating performance and financial condition, as detailed below.
How does Texas Instruments’ valuation look vs. the S&P 500?
Going by what you pay per dollar of sales or profit, TXN stock looks expensive compared to the broader market.
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• Texas Instruments has a price-to-sales (P/S) ratio of 10.7 vs. a figure of 3.1 for the S&P 500
• Additionally, the company’s price-to-operating income (P/EBIT) ratio is 30.7 compared to 24.4 for the S&P 500
• And, it has a price-to-earnings (P/E) ratio of 27.0 vs. the benchmark’s 24.4
How have Texas Instruments’ revenues grown over recent years?
Texas Instruments’ Revenues have seen a decline over recent years.
• Texas Instruments has seen its top line grow at an average rate of 7.8% over the last 3 years (vs. 9.8% for the S&P 500)
• Its revenues have shrunk 13.3% from $18 Bil to $16 Bil in the last 12 months (vs. change of 5.6% for S&P 500)
• Also, its quarterly revenues shrank 8.4% to $4.2 Bil in the most recent quarter from $4.5 Bil a year ago (vs. 7.2% change for S&P 500)
How profitable is Texas Instruments?
Texas Instruments’ profit margins are much higher than most companies in the Trefis coverage universe.
• Texas Instruments’ Operating Income over the last four quarters was $5.5 Bil, which represents a high Operating Margin of 35.0% (vs. 12.6% for S&P 500)
• Texas Instruments’ Operating Cash Flow (OCF) over this period was $6.2 Bil, pointing to a high OCF-to-Sales Ratio of 39.7% (vs. 14.4% for S&P 500)
Does Texas Instruments look financially stable?
Texas Instruments’ balance sheet looks strong.
• Texas Instruments’ Debt figure was $15 Bil at the end of the most recent quarter, while its market capitalization is $179 Bil (as of 2/19/2025). This implies a strong Debt-to-Equity Ratio of 8.6% (vs. 19.7% for S&P 500). [Note: A lower Debt-to-Equity Ratio is desirable]
• Cash (including cash equivalents) makes up $8.8 Bil of the $35 Bil in Total Assets for Texas Instruments. This yields a strong Cash-to-Assets Ratio of 24.8% (vs. 14.1% for S&P 500)
How resilient is TXN stock during a downturn?
TXN stock has seen an impact that was slightly worse than the benchmark S&P 500 index during the last two economic downturns. Worried about the impact of a market crash on TXN stock? Our dashboard How Low Can Texas Instruments Stock Go In A Market Crash? has a detailed analysis of how the stock performed during and after previous market crashes.
COVID Recession (February to April 2020)
• TXN stock fell 29.9% from a high of $115.96 on 23 January 2020 to $81.34 on 16 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Covid peak by 8 June 2020 – taking 84 days to recover while the S&P 500 took 148 days
• Since then, the stock has increased to a high of $218.67 on 10 November 2024 and currently trades at around $195
Great Recession (December 2007 to June 2009)
• During the 2007-09 recession, TXN stock fell from a peak value of $24.46 on 23 July 2007 to $9.08 on 2 March 2009 a decline of 62.9% (vs. a peak-to-trough decline of 56.8% for the S&P 500)
• However, the stock fully recovered to its pre-recession peak by 8 February 2013 – taking 1439 days to recoup its losses vs. the 1480 days taken by the S&P 500 to recover
Putting all the pieces together: What it means for TXN stock
In summary, Texas Instruments’ performance across the parameters detailed above are as follows:
• Growth: Weak
• Profitability: Very Strong
• Financial Stability: Very Strong
• Downturn Resilience: Neutral
• Overall: Strong
But given its very high valuation, the stock appears relatively expensive, which supports our conclusion that TXN is an expensive stock to buy.
The rich valuation of TXN stock limits its upside potential in the near-to-mid term. As an alternative, the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.