Is Now An Opportune Moment To Examine Tower Semiconductor Ltd. (NASDAQ:TSEM)?

By
Simply Wall St
Published
January 18, 2022
NasdaqGS:TSEM
Source: Shutterstock

Tower Semiconductor Ltd. (NASDAQ:TSEM), might not be a large cap stock, but it led the NASDAQGS gainers with a relatively large price hike in the past couple of weeks. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine Tower Semiconductor’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Tower Semiconductor

What's the opportunity in Tower Semiconductor?

According to my valuation model, Tower Semiconductor seems to be fairly priced at around 16% below my intrinsic value, which means if you buy Tower Semiconductor today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth $47.99, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Tower Semiconductor’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Tower Semiconductor?

earnings-and-revenue-growth
NasdaqGS:TSEM Earnings and Revenue Growth January 18th 2022

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 51% over the next year, the near-term future seems bright for Tower Semiconductor. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has already priced in TSEM’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping tabs on TSEM, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 1 warning sign for Tower Semiconductor you should know about.

If you are no longer interested in Tower Semiconductor, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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