Unveiling Tower Semiconductor (TSEM)'s Value: Is It Really Priced Right? A Comprehensive Guide
Tower Semiconductor Ltd (NASDAQ:TSEM) experienced a daily loss of 6.98% and a three-month loss of 35.14%. Despite these losses, the company reported an Earnings Per Share (EPS) of 2.47. These figures prompt the question: is the stock significantly undervalued? This article seeks to answer this question through an in-depth valuation analysis of Tower Semiconductor. We invite you to read on to gain insights into the company's financial performance and intrinsic value.
Company Introduction
Tower Semiconductor Ltd is a pure-play specialty foundry that manufactures semiconductors. As a pure-play foundry, it focuses on producing integrated circuits (ICs), based on the design specifications of customers. The company's line of integrated circuits is incorporated into a variety of products and markets, including consumer electronics, personal computers, communications, automotive, and industrial and medical device products. Tower produces ICs alongside wholly-owned subsidiaries through fabrication facilities located in Japan. As a complement to its technology offerings, Tower offers services that enable a quick and accurate design cycle. To further assist customers with design and technical support, an integrated team helps clients through the manufacturing cycle.
As of October 09, 2023, Tower Semiconductor (NASDAQ:TSEM) has a market cap of $2.40 billion and a stock price of $22.8 per share. However, its fair value (GF Value) is estimated at $34.34, indicating that the stock is significantly undervalued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
Based on the GuruFocus Value calculation, Tower Semiconductor (NASDAQ:TSEM) stock is significantly undervalued. The GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $22.8 per share, Tower Semiconductor is believed to be significantly undervalued. Because of this, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, an investor must review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to understand its financial strength. Tower Semiconductor has a cash-to-debt ratio of 2.24, which ranks better than 51.77% of 904 companies in the Semiconductors industry. The overall financial strength of Tower Semiconductor is 8 out of 10, indicating strong financial health.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Tower Semiconductor has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $1.50 billion and an Earnings Per Share (EPS) of $2.47. Its operating margin is 17.87%, which ranks better than 78.83% of 954 companies in the Semiconductors industry. Overall, the profitability of Tower Semiconductor is ranked 7 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth . Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Tower Semiconductor is 9.7%, which ranks worse than 56.18% of 874 companies in the Semiconductors industry. The 3-year average EBITDA growth is 22.4%, which ranks worse than 50.13% of 776 companies in the Semiconductors industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Tower Semiconductor's return on invested capital is 13.33, and its cost of capital is 9.11.
Conclusion
In conclusion, the stock of Tower Semiconductor (NASDAQ:TSEM) is believed to be significantly undervalued. The company's financial condition is strong and its profitability is fair. Its growth ranks worse than 50.13% of 776 companies in the Semiconductors industry. To learn more about Tower Semiconductor stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
