Should You Investigate Tower Semiconductor Ltd. (NASDAQ:TSEM) At US$45.82?

Tower Semiconductor Ltd. (NASDAQ:TSEM), might not be a large cap stock, but it saw a significant share price rise of 26% in the past couple of months on the NASDAQGS. The recent jump in the share price has meant that the company is trading at close to its 52-week high. 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, could the stock still be trading at a relatively cheap price? 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?

Great news for investors – Tower Semiconductor is still trading at a fairly cheap price according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. we find that Tower Semiconductor’s ratio of 10.32x is below its peer average of 28.07x, which indicates the stock is trading at a lower price compared to the Semiconductor industry. What’s more interesting is that, Tower Semiconductor’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to move closer to its industry peers, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Tower Semiconductor generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Tower Semiconductor, at least in the near future.

What This Means For You

Are you a shareholder? Although TSEM is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. We recommend you think about whether you want to increase your portfolio exposure to TSEM, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on TSEM for a while, but hesitant on making the leap, we recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So while earnings quality is important, it's equally important to consider the risks facing Tower Semiconductor at this point in time. For instance, we've identified 2 warning signs for Tower Semiconductor (1 is significant) you should be familiar with.

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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.