NXP Semiconductors’s stock price has taken a beating over the past six months, shedding 23.8% of its value and falling to $207.40 per share. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy NXP Semiconductors, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.Even though the stock has become cheaper, we're swiping left on NXP Semiconductors for now. Here are three reasons why you should be careful with NXPI and a stock we'd rather own.
Why Is NXP Semiconductors Not Exciting?
Spun off from Dutch electronics giant Philips in 2006, NXP Semiconductors (NASDAQ: NXPI) is a designer and manufacturer of chips used in autos, industrial manufacturing, mobile devices, and communications infrastructure.
1. Revenue Growth Flatlining
We at StockStory place the most emphasis on long-term growth, but within semiconductors, a stretched historical view may miss new demand cycles or industry trends like AI. NXP Semiconductors’s recent history shows its demand slowed as its revenue was flat over the last two years. 
2. Free Cash Flow Margin Stuck in Neutral
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, NXP Semiconductors’s margin was unchanged over the last five years, showing it couldn’t improve. Its free cash flow margin for the trailing 12 months was 21.3%.
3. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect NXP Semiconductors’s revenue to rise by 5.3%. Although this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.
Final Judgment
NXP Semiconductors’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 13.9× forward price-to-earnings (or $207.40 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at Wabtec, a leading provider of locomotive services benefiting from an upgrade cycle.
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