NVIDIA Vs. Texas Instruments: Which Stock Is Better Now?
Zacks Investment Research | Jun 22, 2017 10:03PM ET
Tech shares have been having a volatile time of late following concerns raised over the sector’s exorbitant valuations. Last Friday, The Goldman Sachs Group, Inc. (NYSE:GS) issued a report regarding the top five tech majors of the year in terms of performance, which triggered off several questions about the sector’s recent gains. As a result, the Nasdaq closed 1.8% lower and also posted its worst weekly performance in a year. (Read: the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance
The Zacks Semiconductor – General industry has performed strongly over the last one year, increasing 45.4% versus the S&P 500’s 19.8% gain. Texas Instruments has underperformed the broader industry, increasing only 30.6% over the same period. In contrast, Nvidia has posted a whopping 246.2% increase.
Valuation
The most appropriate valuation metric in case of the semiconductor industry is the Price-to-Book ratio. This ratio successfully captures the fluctuation in earnings experienced by the sector. First, it is important to consider where the industry as a whole stands from a valuation perspective. Here, we can see that with a Price-to-Book ratio of 3.53, the Semiconductor- General industry is marginally undervalued compared to the S&P 500 which has a value of 3.64.
Coming to the two chipmakers, both Nvidia and Texas Instruments are overvalued relative to their broader industry. However, Texas Instruments holds the edge here with a lower price-to-book ratio of 7.43, compared to Nvidia’s value of 15.37.
Return on Equity
This is a key metric of profitability and is utilized by investors to gauge the level of bet profit returned relative to equity held by shareholders. Here, Nvidia is clearly ahead with a return on equity level of 36.4%, which is higher than the industry’s level of 21.84%. At 34.5%, Texas Instrument’s return on equity value exceeds the industry average, but it is inferior to the one sported by Nvidia.
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EBITDA Margin
EBITDA margin is among the more the popular measures of a company’s operating profitability. EBITDA stands for earnings before interest, taxes, depreciation and amortization. Thus, EBITDA margin shows what percentage EBITDA makes up of total revenues. It provides investors with a good idea about both the cash flow and the operating profitability of a company.
Here, Nvidia falls behind with an EBITDA margin of 32.6%, which is lower than the industry average of 39.49%. Texas Instrument emerges as the clear winner on this count with an EBITDA margin of 44.51%.
Current Ratio
This metric measures the ability of a company to service both short term and long term debt. In other words, it is the ratio of the current level of total assets and expresses to that of the current level of liabilities. Here, Nvidia is a clear winner with a current ratio of 8.26, which is superior to the industry average of 1.78 as well as Texas Instrument’s reading of 4.51.
Earnings History, ESP and Estimate Revisions
Considering a more comprehensive earnings history, both Texas Instruments and Nvidia have delivered positive surprises in all the prior four quarters. However, Nvidia stands out with an average earnings surprise of 27%, higher than Texas Instrument’s level of 7.7%.
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