Texas Instruments (TXN) stock price has risen by almost 20% this year and is hovering near its highest point on record. It was trading at $203.15 on Friday, a few points below the year-to-date high of $215.
Texas Instruments’ growth has stalled
Texas Instruments is one of the biggest companies in the technology industry with a market cap of over $188 billion.
It is a top manufacturer of semiconductors that are mostly used in the industrial sector. As a result, most of its customers are firms in industries like factories, grid infrastructure, medical, and lighting.
34% of its customers are in the automotive sector, followed by personal electronics, communication, and enterprise systems.
Texas Instruments generates most of its money in the analog industry, where it manufactures chips that convert real-world signals like sound and temperature into streams of digital data that can be processed by other semiconductors.
Texas Instruments business has slowed mostly because of the weak performance of the manufacturing sector. Recent PMI numbers by companies like S&P Global and the Institute of Supply Management (ISM) showed that the manufacturing sector in the US has remained below the expansion zone of 50.
Its annual revenue peaked at over $20 billion in 2022 to $17.5 billion in the last financial year. Its profit moved from $8.7 billion to $6.5 billion.
The most recent results showed that its revenue dropped slightly in the last quarter. Its revenue dropped by 4% to $4.1 billion, while its operating profit moved downwards by 18% to $1.5 billion. Also, the net income fell by 20% to $1.3 billion.
Analysts expect that its revenue will drop by 5.10% in the fourth quarter to $3.87 billion. Its quarterly earnings per share metric is also expected to drop from $1.2 to $1.2.
Read more: Texas Instruments is one of the most undervalued companies.
Valuation concerns
The other big concern for Texas Instrument is that its stock has become highly overvalued. For one, the average estimate for the stock is $206, a few points higher than the current $203, meaning that the stock is priced to perfection.
What is worrying is that Texas Instruments has a forward price-to-earnings ratio of 40, higher than the sector median of 29. It is also higher than its five-year average of 25.
The non-GAAP forward P/E of 39.4 is also much higher than the sector median of 23. It is also higher than the forward S&P 500 index average of 21. Also, Texas Instruments has a forward price-to-book ratio of 10.
These valuation figures are significantly higher than other companies that are doing much well. For example, NVIDIA, a company that is having triple-digit revenue growth has a forward P/E ratio of 48.
Meta Platforms, which is growing by almost 20%, has a forward P/E multiple of 25, while Microsoft has a figure of 31.
A likely reason for this valuation is that investors anticipate that its revenue growth will bounce back in 2025. The average revenue estimate is that its revenue will bounce back by 11% to $17.12 billion.
Another reason is that Texas Instruments is seen as a future dividend aristocrat since it has hiked its payouts for almost 20 years.
Texas Instruments stock analysis
TXN chart by TradingView
The daily chart shows that the TXN share price has moved sideways in the past few months. On the positive side, the stock has moved slightly above the 50-day and 25-day Exponential Moving Averages (EMA).
The stock has also formed a rising wedge chart pattern, a popular bearish sign. Therefore, the stock will likely have a bearish sign in the market. If this happens, the next point to watch will be at $180, its lowest point on August 5, down by 12% from the current level.
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