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Dissecting the Numbers for Texas Instruments Incorporated (TXN) and Deckers Outdoor Corporation (DECK)

Texas Instruments Incorporated (NASDAQ:TXN) shares are up more than 9.15% this year and recently decreased -1.22% or -$1.41 to settle at $114.00. Deckers Outdoor Corporation (NYSE:DECK), on the other hand, is up 48.70% year to date as of 06/13/2018. It currently trades at $119.33 and has returned -0.43% during the past week.

Texas Instruments Incorporated (NASDAQ:TXN) and Deckers Outdoor Corporation (NYSE:DECK) 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

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect TXN to grow earnings at a 12.77% annual rate over the next 5 years. Comparatively, DECK is expected to grow at a 11.00% annual rate. All else equal, TXN’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 14.15% for Deckers Outdoor Corporation (DECK). TXN’s ROI is 26.00% while DECK has a ROI of 19.30%. The interpretation is that TXN’s business generates a higher return on investment than DECK’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. TXN’s free cash flow (“FCF”) per share for the trailing twelve months was +0.31. Comparatively, DECK’s free cash flow per share was +1.94. On a percent-of-sales basis, TXN’s free cash flow was 2.03% while DECK converted 3.1% of its revenues into cash flow. This means that, for a given level of sales, DECK 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 4.60 compared to 4.80 for DECK. This means that DECK can more easily cover its most immediate liabilities over the next twelve months. TXN’s debt-to-equity ratio is 0.38 versus a D/E of 0.03 for DECK. TXN is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

TXN trades at a forward P/E of 19.03, a P/B of 10.53, and a P/S of 7.42, compared to a forward P/E of 17.36, a P/B of 3.95, and a P/S of 1.96 for DECK. 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

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. TXN is currently priced at a -5.55% to its one-year price target of 120.70. Comparatively, DECK is 10.17% relative to its price target of 108.31. This suggests that TXN is the better investment over the next year.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. TXN has a beta of 1.25 and DECK’s beta is 1.04. DECK’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 2.57 compared to a short interest of 5.11 for DECK. This implies that the market is currently less bearish on the outlook for TXN.

Summary

Deckers Outdoor Corporation (NYSE:DECK) beats Texas Instruments Incorporated (NASDAQ:TXN) on a total of 8 of the 14 factors compared between the two stocks. DECK is growing fastly, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, DECK is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, FL has better sentiment signals based on short interest.

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