Stock Valuation: A Case Study of Texas Instruments

Abstract

Purpose

The paper is an atternpt to analyze a company (Texas Instruments Inc.) and the intrinsic value of its stock frorn Warren Buffet's perspective. In addition, we provide a sirnple test of the semi-strong form of the Efficient Market Hypothesis (EMH) by using only the publ ic data available for the company to calculate the intrinsic value of its stock.

Methodology

We used the main financial statements of Texas Instruments (Tl). In order to ga in a better understanding of the data, we did a long-term analysis (2008-2017, or 10 years) of the balance sheet, the income statement and the statement of cash flows. Furthermore, we used the Warren Buffett Accounting Book for rules of thumb (or heuristics) to transform the data into information suitable to our buy/sell/hold analysis.

Findings

First, we provide an overall view of Texas Instrument's performance during the 10-year period ending on 12/31/2017. Concerning internal factors, TI's operating efficiency kept improving and remains within good standards. Concerning external factors, TI is engaged in philanthropy and other activities. As of 2017, the company's stock was undervalued, which means that it was a good buy. This finding provides evidence against the semistrong form of the Efficient Market Hypothesis (EMH) that claims security prices incorporate all public information. Howevet some weaknesses have been found in our study. Those were at the internal level, w hich are ethics and current ratios.

Originality/Value

This paper presents a simple evaluation of the semi-strong form of the EMH for one particular stock as opposed to a portfolio of stocks often tested in the finance literature. In addition, we incorporate the specific methods claimed to be used by Warren Buffet which is not usually discussed in typical finance textbooks. We accomplish this through a SWOT analysis and by integrating financial as well as non-financial m easures in our analysis.