Tower Semiconductor Ltd. (NASDAQ:TSEM), which is in the semiconductor business, and is based in Israel, received a lot of attention from a substantial price increase on the NASDAQGS over the last few months. 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? Today I will analyse the most recent data on Tower Semiconductor’s outlook and valuation to see if the opportunity still exists.
What is Tower Semiconductor worth?
Good news, investors! Tower Semiconductor is still a bargain right now. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 19.7x is currently well-below the industry average of 31.31x, meaning that it is trading at a cheaper price relative to its peers. However, 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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Tower Semiconductor generate?
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. Though in the case of Tower Semiconductor, it is expected to deliver a negative earnings growth of -5.4%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Although TSEM is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. I 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, I recommend you dig deeper into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Tower Semiconductor. You can find everything you need to know about Tower Semiconductor in the latest infographic research report. If you are no longer interested in Tower Semiconductor, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.