Taiwan Semiconductor Manufacturing Co Ltd (TAI:2330) shares fell more than 5% on Thursday after announcing mixed results for its most recent quarter. TSMC announced its fiscal second-quarter results before markets opened that missed expectations on revenue but beat on earnings.
Although analysts see an opportunity in TSM’s business moat in the semiconductor industry, they think the current price significantly overvalued TSM stock. Last month, Analysts at Susquehanna upgraded TSM from negative to neutral with a price target of $105.00. At the time of this writing, the stock traded at $117.00 per share, well above the price target.
TSM Q2 highlights and price prediction for Q3 2021
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TSM reported Q2 earnings per share of $0.93, beating analyst expectations of $0.91. The company’s revenue grew by 28% Y/Y to $13.29 billion but still came short of the consensus Street estimate of $13.31 billion.
TSM’s gross and operating margins came relatively in line with expectations at 50% and 36.1%, respectively.
The company expects continued top-line growth in Q3 and beyond. TSM VP and CFO Wendell Huang said in the earnings statement:
“Moving into third quarter 2021, we expect our business to be supported by strong demand for our industry-leading 5nm and 7nm technologies, driven by all four growth platforms, which are smartphone, HPC, IoT, and Automotive-related applications.â€
From this perspective, it looks like TSM would be a great stock to add to your portfolio in Q3. So, does it represent value for money?
TSM shares trade at a trailing P/E ratio of 33.44. Its forward P/E of 26.73 indicates a significant expectation on earnings growth next year. However, given the current pricing, investors may be better of waiting for the stock price to pull back further before buying TSM shares long-term.
Technical overview: TSM pullback seems poised to continue
Although Taiwan Semiconductor’s stock price pulled back on Thursday, it is yet to hit oversold conditions, leaving more room for extended declines. The 100-day moving average appears to be providing support, but this may not last long.
Investors can target extended pullback profits at approximately $113.63 or lower at $107.89. The key resistance levels are $122.24 and $127.62.
Bottom line: the case for shorting TSM stock after the pullback
Taiwan Semiconductor shares appear to be experiencing solid bearish pressure following Thursday’s post-earnings pullback. However, the downward movement is yet to push the stock to oversold conditions, leaving more room for declines.
Therefore, although analysts expect earnings to grow by 50% this year, the stock price may already be pricing in those expectations. Growth prospects for next year are limited at 17.15%, exposing the TSM stock to more downward movements.
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