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Should Value Investors Choose Taiwan Semiconductor (TSM) Stock?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Taiwan Semiconductor Manufacturing Company Limited (TSM - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Taiwan Semiconductor has a trailing twelve months PE ratio of 16.12. This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.30.
If we focus on the long-term PE trend, Taiwan Semiconductor’s current PE level puts it among the highs experienced for this stock. The current level is above its midpoint over the past five years (which stands at 15.12) and the stock’s PE metric has been on a general uptrend since mid-2015. This suggests that the stock is somewhat overvalued in comparison to its own historical trend.
Meanwhile, the stock’s PE compares favorably with the Zacks classified Computer & Technology sector’s trailing twelve months PE ratio, which stands at 21.86. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Taiwan Semiconductor has a forward PE ratio (price relative to this year’s earnings) of just 14.36 – lower than the current level. So, it is fair to say that a slightly more value-oriented path may be ahead for Taiwan Semiconductor stock in the near term too.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Taiwan Semiconductor’s PEG ratio stands at just 0.95, compared with the Zacks Computer and Technology sector average of 1.84. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Taiwan Semiconductor currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Taiwan Semiconductor a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the EV/EBITDA for Taiwan Semiconductor is just 8.48, a level that is slightly lower than the sector average of 9.46. The EV/EBITDA multiple (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) is capital structure-neutral, as it takes into account the level of debt on a company’s balance sheet, not just its equity.
Additionally, its P/CF ratio (another great indicator of value) comes in at 9.68, which is far better than the sector average of 12.50. Clearly, TSM is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Taiwan Semiconductor might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘A’ and a Momentum score of ‘D’. This gives TSM a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Taiwan Semiconductor seems to have pretty striking prospects.
Meanwhile, the company’s recent earnings estimates have been trending upwards slightly. The current quarter has seen no revisions in the past thirty days, while the full year estimate has seen one upward revision and no downward revisions in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate remained constant over the past month, while the full year estimate has inched higher by 1.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Taiwan Semiconductor Manufacturing Company Ltd. Price and Consensus
This somewhat favorable trend is why the stock has a Zacks Rank #2 (Buy) and why we are looking for better performance from the company in the near term.
Bottom Line
Taiwan Semiconductor is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. It forms a part of the Zacks categorized Semiconductor - Circuit Foundry industry which carries ranks in the Top 2% out of more than 250 industries. Boasting a formidable industry rank and a top Zacks Rank, the company deserves attention right now. So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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Should Value Investors Choose Taiwan Semiconductor (TSM) Stock?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Taiwan Semiconductor Manufacturing Company Limited (TSM - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Taiwan Semiconductor has a trailing twelve months PE ratio of 16.12. This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.30.
If we focus on the long-term PE trend, Taiwan Semiconductor’s current PE level puts it among the highs experienced for this stock. The current level is above its midpoint over the past five years (which stands at 15.12) and the stock’s PE metric has been on a general uptrend since mid-2015. This suggests that the stock is somewhat overvalued in comparison to its own historical trend.
Meanwhile, the stock’s PE compares favorably with the Zacks classified Computer & Technology sector’s trailing twelve months PE ratio, which stands at 21.86. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Taiwan Semiconductor has a forward PE ratio (price relative to this year’s earnings) of just 14.36 – lower than the current level. So, it is fair to say that a slightly more value-oriented path may be ahead for Taiwan Semiconductor stock in the near term too.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Taiwan Semiconductor’s PEG ratio stands at just 0.95, compared with the Zacks Computer and Technology sector average of 1.84. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Taiwan Semiconductor currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Taiwan Semiconductor a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the EV/EBITDA for Taiwan Semiconductor is just 8.48, a level that is slightly lower than the sector average of 9.46. The EV/EBITDA multiple (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) is capital structure-neutral, as it takes into account the level of debt on a company’s balance sheet, not just its equity.
Additionally, its P/CF ratio (another great indicator of value) comes in at 9.68, which is far better than the sector average of 12.50. Clearly, TSM is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Taiwan Semiconductor might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘A’ and a Momentum score of ‘D’. This gives TSM a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Taiwan Semiconductor seems to have pretty striking prospects.
Meanwhile, the company’s recent earnings estimates have been trending upwards slightly. The current quarter has seen no revisions in the past thirty days, while the full year estimate has seen one upward revision and no downward revisions in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate remained constant over the past month, while the full year estimate has inched higher by 1.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Taiwan Semiconductor Manufacturing Company Ltd. Price and Consensus
Taiwan Semiconductor Manufacturing Company Ltd. Price and Consensus | Taiwan Semiconductor Manufacturing Company Ltd. Quote
This somewhat favorable trend is why the stock has a Zacks Rank #2 (Buy) and why we are looking for better performance from the company in the near term.
Bottom Line
Taiwan Semiconductor is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. It forms a part of the Zacks categorized Semiconductor - Circuit Foundry industry which carries ranks in the Top 2% out of more than 250 industries. Boasting a formidable industry rank and a top Zacks Rank, the company deserves attention right now. So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
Zacks’ Best Private Investment Ideas
While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public. Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Click here for Zacks' private trades >>