Taiwan Semiconductor Manufacturing Company (TSM) is the world’s largest dedicated chip foundry, with over 58% market share. Many leading fabless chip makers, including Qualcomm (QCOM) and Advanced Micro Devices (AMD) rely on TSM to manufacture their smallest and most powerful chips.
The company has been benefiting from a huge appetite for new chips and with the global chip shortage expected to continue for another year, that appetite should only grow. TSM has also gotten a boost from automakers as 49% of its sales went to automakers, with the segment rising 87% year-over-year in the most recent quarter.
While the company has $5 billion in short term debt, its cash balance of $31.5 billion is more than enough to cover that debt, leading to a Quality Grade of B in our POWR Ratings system. In terms of growth, EPS was up 19.2% year over year in the second quarter and is expected to rise 18% for the year.
The stock appears a bit overvalued with a trailing P/E of 29.32 and a forward P/E of 27.62. TSM’s stock was showing bullish momentum last fall, but this year, performance has been mixed, which is evident from the chart below.
Take a look at the 6-month chart of TSM below with added notations:
Chart of TSM provided by TradingView
TSM has repeatedly bounced on top of a key level of support at $108 (green). The stock appears to be falling back down to that support again. A break of $108 could mean much lower prices for the stock.
A trader could enter a short position on a break below $108 with a protective stop placed above the level.
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TSM shares fell $1.70 (-1.54%) in premarket trading Thursday. Year-to-date, TSM has gained 0.28%, versus a 17.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Christian Tharp
I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing. More...
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