TSMC (TSM – Free Report) is one of Zacks.com’s visitors’ most-watched stocks these days. Therefore, we recommend looking at some of the factors that can affect a stock’s short-term performance.
The chip company’s stocks have returned +23% last month compared to a +5.7% change in the Zachs S&P 500 Composite. The Zacks Semiconductor – Circuit Foundry industry, to which TSMC belongs, rose 24.8% over the period. The key question here is where is the stock likely to go in the near future?
Media releases and rumors about significant changes in a company’s business prospects typically “trend” its stock, leading to immediate price movements, but ultimately several factors that govern buying and holding decisions. There are always basic facts.
Revision of earnings forecast
At Zacks, we prioritize assessing changes in a company’s revenue projections rather than focusing on other things. This is because we believe the fair value of a stock is determined by the present value of future earnings streams.
Our analysis is essentially based on how sell-side analysts covering equities revise their earnings forecasts in light of the latest business developments. As a company’s earnings projections go up, so does its stock’s fair value. Also, if the fair value of a stock is higher than the current market price, investors will tend to buy the stock, resulting in an increase in its price. For this reason, empirical studies have shown that there is a strong correlation between earnings forecast revision trends and short-term stock price movements.
TSMC is expected to post earnings of $1.21 per share this quarter, representing a -13.6% change year-over-year. Over the last 30 days, the Zacks Consensus Estimate has changed by +3.9%.
The consensus expected profit for the year was $5.60, down 14.8% from last year. Over the past 30 days, this estimate has changed by -2.8%.
The consensus earnings estimate for the next fiscal year is $6.54, a +16.8% change from what TSMC expected to report a year ago. Estimates have changed +1.3% over the past month.
With a strong track record of external audits, our proprietary stock valuation tool, Zacks Rank, effectively harnesses the power of earnings forecast revisions to provide a clearer picture of near-term stock price direction. TSMC is rated at Zacks rank #3 (Hold) due to the magnitude of the recent change in consensus forecasts and three other factors related to earnings forecasts.
The chart below shows the evolution of the company’s 12-month consensus EPS forecast.
12 months EPS
Expected revenue growth rate
Earnings growth is arguably the best indicator of a company’s financial health, but if you can’t make money, nothing happens. It is almost impossible for a company to grow profitably without turning a profit for a long period of time. Therefore, knowing the potential revenue growth rate of a company is very important.
For TSMC, the consensus revenue estimate for the quarter is $17.3 billion, representing a -1.5% change year-over-year. Estimates of $78.45 billion and $89.59 billion for the current and next fiscal years represent a change of +3.4% and +14.2%, respectively.
Last Reported Results and Surprise History
TSMC reported revenue of $19.93 billion in its last reported quarter. At the same time he had EPS of $1.82 and a year ago he was at $1.15.
Compared to the Zacks Consensus estimate of $20.29 billion, the reported revenue represents a surprise of -1.78%. EPS surprise was +1.11%.
The company beat consensus EPS estimates in each of the four subsequent quarters. The company has beaten consensus earnings estimates only once in this period.
You can’t make effective investment decisions without considering stock valuations. When predicting the future price performance of a stock, it is important to determine whether current prices accurately reflect the intrinsic value of the underlying business and the company’s growth prospects.
The current value of a company’s valuation multiples, such as price-to-earnings ratio (P/E), price-to-sales (P/S), price-to-cash-flow (P/CF), Helps to see if it’s fair valued, overvalued or undervalued, but how reasonable its stock price is when comparing the company to its peers on these parameters is well understood.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) classifies stocks into five groups from A to F (A is better than B, B is better than C, and so on). ), which helps identify whether a stock is overvalued, overvalued, or temporarily undervalued.
TSMC is rated B on this metric, indicating that it is trading at a discount to its peers. Click here to see the values of some of the metrics that contributed to this grade.
The facts discussed here, along with plenty of other information about Zacks.com, may help you decide whether the market buzz about TSMC is worth paying attention to. However, Zacks ranked No. 3 suggests that it may perform in line with the broader market in the near future.