Does Trending Stock Taiwan Semiconductor Manufacturing Company Ltd. (TSM) is a buy it now?

TSMC (TSM) has been one of the most searched stocks on Zacks.com lately. So, you might want to consider some of the facts that could shape the stock’s performance in the short term.

Over the past month, shares of this chip company have returned -18.5%, compared to the -3.8% change in the Zacks S&P 500 composite. During this period, the industry Zacks Semiconductor – Circuit Foundry, of which TSMC is a part, lost 18.2%. The key question now is: what could be the future direction of the title?

While press releases or rumors about a substantial change in a company’s trading outlook usually “trend” its stock and cause an immediate price change, there are always fundamental facts that ultimately dominate the take. purchase and retention decision.

Revisions to earnings estimates

At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.

Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.

TSMC is expected to post earnings of $1.76 per share for the current quarter, representing a year-over-year change of +53%. Over the past 30 days, the Zacks consensus estimate has changed by -0.8%.

For the current fiscal year, the consensus earnings estimate of $6.26 indicates a change of +51.9% from the prior year. Over the last 30 days, this estimate has changed by +0.8%.

For the next fiscal year, the consensus earnings estimate of $5.69 indicates a change of -9.2% from what TSMC is expected to report a year ago. Over the past month, the estimate has changed by -11.7%.

With an impressive externally audited track record, our proprietary stock rating tool – the Zacks Ranking – is a more conclusive indicator of a stock’s short-term price performance, as it effectively harnesses the power of earnings estimate revisions. . The magnitude of the recent change in the consensus estimate, along with three other factors related to earnings estimates, resulted in a No. 3 (hold) Zacks ranking for TSMC.

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

Revenue Growth Forecasts

Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a company.

For TSMC, the current quarter sales consensus estimate of $20.29 billion indicates a year-over-year change of +29%. For the current and future fiscal years, the estimates of $72.3 billion and $77.31 billion indicate variations of +27.3% and +6.9%, respectively.

Latest reported results and history of surprises

TSMC reported revenue of $20.23 billion in the last reported quarter, representing a year-over-year change of +35.9%. EPS of $1.79 for the same period versus $1.08 a year ago.

Compared to the Zacks consensus estimate of $20.83 billion, reported revenue is a surprise -2.92%. Surprise EPS was +5.92%.

The company has exceeded consensus EPS estimates in each of the past four quarters. The company exceeded consensus revenue estimates only once during this period.

Evaluation

Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.

Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values ​​help determine whether its stock is fairly priced, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of ​​the reasonableness of its price.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.

TSMC is rated B on this front, indicating that it is trading at a discount to its peers. Click here to see values ​​for some of the rating metrics that led to this rating.

Conclusion

The facts discussed here and plenty of other information on Zacks.com might help determine whether it’s worth paying attention to the market buzz about TSMC. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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