The Bull Rankings scorecard — our quality-growth score is 62.4 / 100, built from three pillars scored 0–100: Quality 82, Growth 79, Value 37 (valuation is judged against sector peers). At today's price, our reverse-DCF read says the market is implicitly betting on free-cash-flow growth of about 39% a year next year, fading to 3% a year by year ten — a gauge of how much optimism is already in the stock.
The thesis
Texas Instruments is a high‑quality compounder that is already priced for a very optimistic growth path. Our model gives it a quality‑growth score of 62.4/100, with Quality 82 and Growth 79 topping the chart, while Value 37 lags behind. The high quality pillar is the story: a 31.1 % profit margin and 33.6 % ROE demonstrate that the firm turns sales into earnings very efficiently. The growth pillar is equally compelling—16.7 % revenue growth YoY in the latest period shows the business is still expanding at a double‑digit rate. The low value score simply reflects the premium the market has already placed on the company; it is not a warning sign but a reminder that the price is already steep.
The single sharpest point on TXN today is that the market has priced in 39 % annual free‑cash‑flow growth (in year one, slowing to 3% a year by year ten) (reverse‑DCF). That figure dwarfs the current revenue growth of 16.7 %. If the company can deliver that pace, the current price of $261.59 is justified. If it cannot, the stock looks expensive.
What the business actually is
TXN sells semiconductors to electronics designers and manufacturers worldwide. Its Analog segment delivers power products—battery‑management solutions, DC/DC switching regulators, AC/DC and isolated controllers, power switches, linear regulators, voltage references, multiphase controllers, and lighting products. Analog also includes signal‑chain products that sense, condition, and process signals, while the Embedded Processing segment sells microcontrollers and processors. The Analog segment is the revenue engine, feeding a broad customer base that ranges from consumer electronics to industrial control systems across the United States, China, Asia, Europe, the Middle East, Africa, and Japan.
Why it can (or can't) keep compounding
The moat is built on high margins and strong cash‑flow generation. A 31.1 % profit margin is a clear sign that Texas Instruments can charge premium prices for its differentiated products. The company’s debt‑to‑equity of 0.78 keeps leverage manageable, while the beta of 1.31 means the stock swings more than the market. The Durable high returns signal from our model shows returns on capital have held up for years, and ROE stands at 33.6 %. Competitors cannot copy the Analog segment’s breadth of power solutions quickly because it requires deep expertise in power electronics, extensive manufacturing capabilities, and a global supply chain refined over decades, and its own 300‑millimeter factories keep manufacturing costs low. The result is a sticky customer base that relies on Texas Instruments for both performance and reliability.
The valuation question
At $261.59, the stock trades at a P/E of 39.8. The analyst consensus 1‑year target of $324.71 suggests a modest upside of roughly 24 %. However, the reverse‑DCF implies 39 % free‑cash‑flow growth (in year one, slowing to 3% a year by year ten), a figure that is more than double the current revenue growth of 16.7 %. Free cash flow has been held down by heavy factory spending, which helps explain why the implied rate is so high. If the company can deliver that pace as spending eases, the current price is justified; if it cannot, the upside is limited. The PEG ratio of 0.92 says the multiple roughly matches the earnings growth analysts expect, but the high P/E shows that investors are already demanding a premium for the quality and growth prospects. The value pillar of 37 signals that the stock is not a bargain; it is a premium play that has already absorbed a lot of optimism.
The bear case
The most convincing skeptic would point to the low value score of 37. A price that is already high relative to peers means that any slowdown in growth or margin compression would quickly erode the premium. If revenue growth were to dip below 16.7 % or if the profit margin fell below 31.1 %, the implied 39 % free‑cash‑flow growth would become unrealistic. The market would then have to reassess the valuation, potentially trimming the price sharply. A single negative earnings surprise or a supply‑chain disruption could trigger such a scenario.
What would change our mind
- Revenue growth falling below 16.7 % for two consecutive quarters would undermine the 39 % free‑cash‑flow growth assumption.
- Profit margin slipping below 31.1 % would signal that competitors are eroding the company’s pricing power.
- Debt‑to‑equity rising above 0.78 would raise leverage concerns and limit future capital deployment.
If any of these thresholds were crossed, the high‑quality, high‑growth narrative would weaken, and the current premium would no longer be justified.