Shares of NXP Semiconductors (NASDAQ:NXPI) recently plunged after the Brexit vote, dropping about 8% on June 24 and slipping another 6% the following Monday. The stock has slightly rebounded since then, but remains down nearly 20% over the past month.

Back when NXP traded in the mid $80s in late April, I called the stock a great value play. Now that the stock has dropped to the high $70s, is it too cheap to ignore? To decide, let's take a look at the reasons behind the plunge, its valuation, and growth opportunities.

Image source: NXP.

What's wrong with NXP?

NXP has been weighed down by two major concerns over the past year. First, there were concerns that its sales of NFC chips to Apple (NASDAQ:AAPL) would be hurt by a slowdown in iPhone sales. Second, its acquisition of Freescale didn't boost its revenue as much as anticipated after the deal closed last December. That acquisition made it the largest automotive chips maker in the world, and diversified its top line away from Apple. Meanwhile, a general slowdown across the semiconductor sector further dragged down NXP.

The Brexit vote then triggered a steep sell-off in European stocks, which hit Netherlands-based NXP particularly hard. The tricky thing about judging this impact is that neither NXP nor Freescale regularly disclosed how much revenue came from Europe. But considering that NXP evolved from Philips-Signetics, a unit of Philips (NYSE:PHG) which was one of Europe's largest semiconductor makers, that exposure is probably significant.

Moreover, the newly combined company's biggest source of revenue is now automotive chips, and the U.K., Germany, France, and Italy all rank among the top ten biggest car markets in the world. On a combined and adjusted basis, NXP's automotive chips revenue only rose 1% annually last quarter and accounted for 36% of its top line. A Brexit-induced slowdown could cause that growth to turn negative. Meanwhile, sales of Secure Connected Devices (SCD), which include NFC chips for Apple, dropped 10% on a combined basis due to a 16% decline in iPhone shipments last quarter.

But is NXP fundamentally cheap?

Some of those headwinds are worrisome, but the recent sell-off in NXP has reduced its trailing P/E to 18, which is slightly higher than the industry average of 17 but much lower than Texas Instruments' (NASDAQ:TXN) P/E of 22 and STMicroelectronics' P/E of 61.

Looking ahead, analysts expect NXP to grow its annual earnings by 34% over the next five years. That gives it a 5-year PEG ratio of just 0.4. Since a PEG ratio under 1 is considered undervalued, NXP looks very cheap relative to its earnings growth potential (if analyst estimates are accurate). Texas Instruments and STMicro have respective 5-year PEG ratios of 2.1 and 0.7.

NXP doesn't pay a dividend like Texas Instruments, STMicro, and other big semiconductor stocks. That's a potential weakness in this volatile market, since decent yields can set a floor under the stock in turbulent times. However, NXP spent $737 million (74% of its free cash flow) over the past 12 months on buybacks, which can support the stock price and boost earnings. NXP's buybacks are fairly well-timed. Last quarter, it spent $298 milion to buy back 4.1 million shares at a weighted average cost of $71.86 per share -- which is still significantly lower than the current price.

Focusing on long-term growth

I believe that investing in NXP requires a longer-term outlook for its core businesses. NXP's growth in connected cars could pay off significantly over the next decade. BI Intelligence estimates that the percentage of new cars shipped connected to the Internet will rise from 13% in 2015 to 75% in 2020.

By merging with Freescale, NXP can scale its auto chips business and likely produce them at lower prices than smaller rivals. Its recent introduction of BlueBox, a turnkey autonomous driving platform for automakers, can enable it to bundle automotive chips with application processors to widen its moat against driverless challengers like Nvidia (NASDAQ:NVDA). As for its SCD business, the installation of more NFC chips in new Android devices could offset weaker sales of iPhones over the long term.

So is NXP a deep value play?

NXP looks attractive at current prices, but I recommend buying just a small position so that you can average down if it falls further. Further uncertainty about the iPhone, Europe, and auto sales could all weigh down NXP and make it an even better bargain in the near future. Lastly, NXP's buyback price just above $70 last quarter indicates that the stock might need to fall a bit further before it supports it with fresh buybacks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.