Texas Instruments Incorporated (NASDAQ:TXN) shares are up more than 31.77% this year and recently increased 0.34% or $0.33 to settle at $96.15. ON Semiconductor Corporation (NASDAQ:ON), on the other hand, is up 59.87% year to date as of 10/26/2017. It currently trades at $20.40 and has returned 3.71% during the past week.

Texas Instruments Incorporated (NASDAQ:TXN) and ON Semiconductor Corporation (NASDAQ:ON) are the two most active stocks in the Semiconductor – Broad Line industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

**Growth**

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect TXN to grow earnings at a 10.48% annual rate over the next 5 years. Comparatively, ON is expected to grow at a 27.00% annual rate. All else equal, ON’s higher growth rate would imply a greater potential for capital appreciation.

**Profitability and Returns**

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 16.87% for ON Semiconductor Corporation (ON). TXN’s ROI is 24.60% while ON has a ROI of 5.90%. The interpretation is that TXN’s business generates a higher return on investment than ON’s.

**Cash Flow **

The amount of free cash flow available to investors is ultimately what determines the value of a stock. TXN’s free cash flow (“FCF”) per share for the trailing twelve months was +0.26. Comparatively, ON’s free cash flow per share was +0.62. On a percent-of-sales basis, TXN’s free cash flow was 1.93% while ON converted 6.69% of its revenues into cash flow. This means that, for a given level of sales, ON is able to generate more free cash flow for investors.

**Liquidity and Financial Risk**

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. TXN has a current ratio of 4.00 compared to 2.00 for ON. This means that TXN can more easily cover its most immediate liabilities over the next twelve months. TXN’s debt-to-equity ratio is 0.33 versus a D/E of 1.50 for ON. ON is therefore the more solvent of the two companies, and has lower financial risk.

**Valuation**

TXN trades at a forward P/E of 22.29, a P/B of 8.93, and a P/S of 6.74, compared to a forward P/E of 12.74, a P/B of 4.10, and a P/S of 1.72 for ON. TXN is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

**Analyst Price Targets and Opinions**

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. TXN is currently priced at a 6.8% to its one-year price target of 90.03. Comparatively, ON is 0.29% relative to its price target of 20.34. This suggests that ON is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.40 for TXN and 2.10 for ON, which implies that analysts are more bullish on the outlook for TXN.

**Risk and Volatility**

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. TXN has a beta of 1.26 and ON’s beta is 2.02. TXN’s shares are therefore the less volatile of the two stocks.

**Insider Activity and Investor Sentiment**

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. TXN has a short ratio of 2.87 compared to a short interest of 4.09 for ON. This implies that the market is currently less bearish on the outlook for TXN.

**Summary**

ON Semiconductor Corporation (NASDAQ:ON) beats Texas Instruments Incorporated (NASDAQ:TXN) on a total of 8 of the 14 factors compared between the two stocks. ON is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, ON is the cheaper of the two stocks on an earnings, book value and sales basis, ON is more undervalued relative to its price target. Finally, DGLY has better sentiment signals based on short interest.