Most companies that emerge on the stock market take some time to get there. This is because being successful at creating a business large enough to succeed and get the attention and money of investors in a public float is dependent on much more than having a good prospectus and initial public offer (IPO) marketing.
Investors and options trading advisory services that analyze stocks also want to see a demonstrated track record of good earnings, a capable and trustworthy management team and a plan for the future.
Getting all of these elements in place is not easy, and is the reason that many businesses fail, and why only a tiny fraction of them grow large enough to consider an IPO.
NXP Semiconductors (NXPI) is one of those rare businesses that is an exception to the rule and has grown from foundation to successful public listing within less than a decade. A small company that began in the relatively unknown town of Eindhoven in the Netherlands, it is now an employer of over 27,000 workers with a multi billion dollar market capitalization.
The share price which traded below $60 recently as a year ago recently broke the $100 level.
The question now for options trading newsletters like Financial Markets Wizard is whether the company can continue its impressive growth trajectory in the next ten years.
Understanding the Business
Successful investors and entrepreneurial business owners often have a lot in common. The ability to identify an unmet or under-serviced area of the market is by far the most important element to starting a successful business. If that area is also a high growth one, then business owners have found a fantastic opportunity.
These factors were present in 2006 when NXP Semiconductors (NXP) was founded. The first managers and owners of the business saw that the global market for radio frequency, power management and digital processing products was fragmented, and that it was also set to grow rapidly in the next decade.
The emergence of smart phones was an early indicator that a whole range of internet connected devices was about to become available, from power monitors to fridges, and semiconductors were required to serve that need.
Now, the business is serving that booming market, while also innovating by providing a wide range of simple “base” semiconductors to original equipment manufacturers (OEMs) so that they can customize and adapt NXP products for their own gadgets and devices.
Financial Measure and Metrics
The recently reported fourth quarter results for NXP Semiconductors (NXP) showed that this early identification of a growing market has resulted in impressive earnings. Headline revenue across all product lines was $1.5 billion, which was a 20% increase from the already huge number for the same period in the previous year.
Even better for the company was the fact that all business lines were trading at historic revenue levels. Options trading advisory services are more positive on companies that have strong performance across all divisions, as it protects the earnings from any one off surprises and lays a solid platform for future growth.
Reflecting this solid platform across the business was the total revenue for 2014 of $5.5 billion, which was 17% higher than the previous year. While the percentage increases might seem small, it is worth remembering that huge increases become more difficult as the revenue figures become larger, which means that the double digit gains in revenue off a billion dollar plus base are even more impressive.
The HMPS segment was the main revenue contributor, with yearly revenues of $4.2 billion, representing growth of 19%, while the standard products division grew by a slightly slower 11%. This is an encouraging sign for NXP, as it shows that the largest division is also the fastest growing.
The Investment Case
The investment case for NXP is now largely dependent on whether management can continue to reinvest the large proportion of earnings successfully in the business. Reinvesting will include innovating in new product lines to sell to existing customers, as the requirements for the semiconductors that NXP provides become more diverse.
Long term trends like those towards smart cars, connected homes and other “internet of things” applications like smart electricity meters are all also tailwinds for the business model of NXP Semiconductors (NXPI).
The other huge benefit for the company is the wide and diverse existing customer base for their products, who are already engaged with the company and its sales staff, which lowers the cost to acquire new customers and reduces the need for expensive marketing and promotional spending which can negatively affect margins.
NXP Semiconductors (NXPI) is operating in an attractive, high growth, global industry and has achieved some significant milestones in its short life. It already has annual revenues of well over a billion dollars, and the share price has recently passed the $100 mark.
Investors who buy NXPI options or shares could benefit from new products, good management reinvestment of profits and a global trend towards more connectivity, which drives the demand for NXPI products.
To find out more about companies like NXPI and how you can profit from them, you can sign up to the high quality, regular options trading newsletter that Financial Markets Wizard provides to increase your chances of successfully beating the market with your trades.