Despite a daily loss of 3.67%, NXP Semiconductors NV (NXPI, Financial) boasts of a 25.68% gain over the past three months and an impressive Earnings Per Share (EPS) of 10.57. But the question remains: is the stock fairly valued? This article delves into an in-depth analysis of NXP Semiconductors NV's valuation. Read on to discover more about the company's financial health, profitability, and growth prospects.
Company Overview
NXP Semiconductors NV, a leading supplier of high-performance mixed-signal products, has gained significant market share in the automotive industry, supplying microcontrollers and analog chips for various applications. The company, which acquired Freescale Semiconductor in 2015, also serves the industrial and Internet of Things, mobile, and communications infrastructure sectors. With a market cap of $52.60 billion and sales totaling $13.20 billion, the company's stock price stands at $204.2, while its fair value (GF Value) is estimated at $224.08.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, the stock is likely overvalued, and its future return may be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus' valuation method, NXP Semiconductors NV (NXPI, Financial) appears to be fairly valued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on past business growth, and analyst estimates of future business performance. At its current price of $204.2 per share, NXP Semiconductors NV stock indicates a fair valuation. As such, the long-term return of its stock is likely to align closely with the rate of its business growth.
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Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before purchasing shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. NXP Semiconductors NV has a cash-to-debt ratio of 0.35, ranking worse than 83.19% of companies in the Semiconductors industry. The overall financial strength of NXP Semiconductors NV is 6 out of 10, indicating fair financial health.
Profitability and Growth
Consistently profitable companies offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. NXP Semiconductors NV has been profitable 10 years over the past decade. Over the past twelve months, the company had a revenue of $13.20 billion and Earnings Per Share (EPS) of $10.57. Its operating margin is 28.42%, ranking better than 91.98% of companies in the Semiconductors industry. Overall, the profitability of NXP Semiconductors NV is ranked 9 out of 10, indicating strong profitability.
Growth is probably the most important factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of NXP Semiconductors NV is 17.2%, ranking better than 63.67% of companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 26.3%, ranking better than 55.06% of companies in the Semiconductors industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, NXP Semiconductors NV's ROIC was 17.27, while its WACC came in at 9.77.
Conclusion
In conclusion, the stock of NXP Semiconductors NV (NXPI, Financial) gives every indication of being fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 55.06% of companies in the Semiconductors industry. To learn more about NXP Semiconductors NV stock, you can check out its 30-Year Financials here.
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