TSM Stock Study (9-24-25)

Posted by Mark on January 10, 2025 at 07:37 | Last modified: October 23, 2025 10:21

I recently did a stock study on Taiwan Semiconductor Manufacturing Co. Ltd. ADR (TSM) with a closing price of $262.71. Previous studies are here, here, and here.

M* writes:

     > Taiwan Semiconductor Manufacturing Co. is the world’s largest
     > dedicated chip foundry, with mid-60s market share in 2024. TSMC
     > was founded in 1987 as a joint venture of Philips, the government
     > of Taiwan, and private investors. It went public in 1994 and
     > as an ADR in the US in 1997. TSMC’s scale and high-quality
     > technology allow the firm to generate solid operating margins,
     > even in the highly competitive foundry business. Furthermore,
     > the shift to the fabless business model has created tailwinds
     > for TSMC. The foundry leader has an illustrious customer
     > base, including Apple, AMD, and Nvidia, that looks to apply
     > cutting-edge process technologies to its semiconductor designs.

Over the past decade, this mega-size (> $50B annual revenue) company has grown sales and EPS at annualized rates of 15.1% and 17.4%, respectively. Lines are up, straight, and parallel except for an EPS dip in ’19 and sales/EPS dip in ’23. Five-year EPS (sales) R^2 is 0.78 (0.88) and Value Line gives an Earnings Predictability score of 75.

Over the past decade, PTPM is greater than peer and industry averages while increasing from 41.5% (’15) to 48.6% (’24) with a last-5-year mean of 46.0%. ROE slightly trails while ranging from 21.6% in ’19 to 37.4% in ’22 with a last-5-year mean of 29.5%. Debt-to-Capital is much lower than peer and industry averages, ranging from 9.8% in ’18 to 26.0% in ’21 with a last-5-year mean of 21.5%.

Quick Ratio is 2.1 and Interest Coverage is 153 per M* who assigns a “Wide” Economic Moat and rates the company “Standard” for Capital Allocation. Value Line gives an A+ rating for Financial Strength.

With regard to sales growth:

• YF projects YOY 26.5% and 16.0% growth for ’25 and ’26, respectively (based on 36 analysts).
• Zacks projects YOY 35.9% and 14.5% for ’25 and ’26, respectively (3 analysts).
• Value Line projects 12.6% annualized growth from ’24-’29.
• CFRA projects 26.0% YOY and 20.4% growth per year for ’25 and ’24-’26, respectively.
• M* gives a 2-year ACE of 21.1% annualized growth along with its own 5-year [analyst note] estimate of 15.7%.

My 12.0% forecast is below the range.

With regard to EPS growth:

• MarketWatch projects 25.2% and 22.7% per year for ’24-’26 and ’24-’27, respectively (based on 45 analysts).
• Nasdaq.com projects growth of 11.6% YOY and 16.8% for ’26 and ’25-’27 (5, 5, and 2 analysts for ’25, ’26, and ’27).
• Seeking Alpha projects 4-year annualized growth of 21.6%.
• Argus projects 5-year annualized growth of 13.0%.
• Finviz projects 5-year annualized growth of 25.7% (3).
• LSEG gives a LTG forecast of 21.5%.
• YF projects YOY 39.8% and 16.0% for ’25 and ’26, respectively (10).
• Zacks projects YOY 39.6% and 11.6% for ’25 and ’26, respectively (3), along with 5-year annualized growth of 21.4%.
• Value Line projects 21.3% annualized growth from ’24-’29.
• CFRA projects 26.5% YOY and 21.7% per year for ’25 and ’24-’26 along with a 3-year CAGR of 15.0%.
• M* projects long-term annualized growth of 16.7%.

My 13.0% forecast is bottom of the long-term-estimate range (mean of six: 20.2%). I will use ’24 EPS of $6.96/share as the initial value rather than 2025 Q2 EPS of $8.69.

My Forecast High P/E is 26.0. Over the past decade, high P/E increases from 14.1 (’15) to 30.5 (’24) with a last-5-year mean of 28.3 and a last-5-year-mean-average P/E of 20.4. I am forecasting above the last-10-year median of 21.8.

My Forecast Low P/E is 9.0. Over the past decade, low P/E ranges from 9.2 (’22) to 15.5 (’19) with a last-5-year mean of 12.5 (26.3 outlier in ’21 excluded). I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $134.30 is default based on $6.96/share initial value gives an unreasonable $64.70: 77.9% less than the previous close. I am going with the 52-week low despite being 52.5% less than the previous close. Semiconductors are a cyclical industry and I expect to see lower valuations again.

Over the past decade, Payout Ratio (PR) ranges from 28.6% (’22) to 58.8% (’18) with outliers from ’15 (0%) and ’19 (90.6%) excluded. The last-5-year mean is 38.7%. I am forecasting below the entire range at 28.0%.

These inputs land TSM in the SELL zone with a U/D ratio of 0.1. Total Annualized Return (TAR) is 2.1%.

PAR (using Forecast Average—not High—P/E) is NEGATIVE 4.5%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR but even that is less than the risk-free rate (TBills).

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 254 studies (my study and 120 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 15.0%, 15.6%, 27.0, 15.2, and 38.7%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 18.0 is lower than MS (21.1) but higher than mine (17.5).

MS high / low EPS are $16.95 / $8.21 vs. my $12.82 / $6.96 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS of $18.50 soars above both.

MS LSPF of $133.00 implies Forecast Low P/E of 16.2: more than the above-stated 15.2. MS LSPF is 6.6% greater than the default $8.21/share * 15.2 = $124.79 resulting in more aggressive zoning. MS LSPF is 1.0% less than mine.

With regard to valuation, PEG is 2.2 and 1.3 per my projected P/E and Zacks, respectively: slightly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is extremely rich at 1.59.

MOS is strong in this study because my inputs are near or below respective analyst/historical ranges and MS averages. That is further supported by an MS TAR that is 12.5% per year greater than my 2.1%.

My final rating is HOLD rather than SELL because the company has double-digit long-term sales projections. Were it in my portfolio, history shows I might regret selling what appeared to be an overvalued stock that actually had the engine to continue powering higher. Otherwise, it makes no sense for me to establish a new position at this time.

Per U/D, TSM is a BUY under $134.30/share. Given a forecast high ~ $295, 294.9 * ((1 – ((15.0 – 1.2) / 100)) ^ 5) ~ $140 meets the BI TAR criterion.

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