For those keeping a close eye on Taiwan Semiconductor Manufacturing (NYSE:TSM), the stock’s latest moves might have sparked questions about what’s really driving sentiment. There isn’t an event making headlines this week. However, when a name as pivotal as TSM shifts, investors naturally wonder if they’re seeing a sign, either of broader market trends or something company-specific, worth examining more closely. With TSM at the heart of the global chip supply chain, even subtle price action can get people talking about whether the market is rethinking its outlook on growth or risk.

This curiosity comes after a year of TSM steadily building momentum, echoing broader enthusiasm for semiconductors. Over the past year, the stock has delivered a 53% return, and its gains have accelerated over the past month and three months, handily outpacing the market. These moves follow consistent revenue and net income growth, likely spurred by ongoing demand in high-performance computing, even though major outsized headlines have been rare lately.

Given this recent performance and what momentum may signal, it raises the question: is there an opening here for investors, or has the market already priced in everything that lies ahead for TSM?

Most Popular Narrative: 123.7% Overvalued

According to the narrative by StjepanK, Taiwan Semiconductor Manufacturing appears significantly overvalued when compared against projected fair value using key inputs like revenue growth, net margin, and future profit multiples. The narrative projects strong ongoing fundamentals but finds a disconnect between current market price and calculated intrinsic value.

The industry continues to grow, with an expected annual rate of 12.2% between 2023 and 2029, providing a favorable trend for companies operating in the sector. AI is engaged in a positive feedback loop with the chip industry. For a start, there is no AI without chips. However, AI allows chip design to become more efficient and intelligent. Machine learning algorithms analyze vast datasets to generate optimized chip architectures.

Ever wondered what kind of growth story pushes fair value so far below the current price? This narrative’s fair value calculation relies on a few bold assumptions, such as accelerated profits, ambitious revenue forecasts, and specific financial targets. Curious about which expectation is having the greatest impact on this bearish fair value? Explore what sets this projection apart from others and see if your outlook matches up.

However, major geopolitical disruptions or critical supply challenges could quickly overturn even the most stable and long-term outlooks for TSM.

Another View: What Do Earnings Multiples Say?

On the flip side, another method looks at how the company’s earnings compare to others in the industry. By this approach, Taiwan Semiconductor actually comes across as reasonably valued relative to its peers. Which lens offers the truer picture?

Stay updated when valuation signals shift by adding Taiwan Semiconductor Manufacturing to your watchlist or portfolio. Alternatively, explore our screener to discover other companies that fit your criteria.

Build Your Own Taiwan Semiconductor Manufacturing Narrative

If you see things differently or want to dive deeper into the figures yourself, you can easily shape your own version in just a few minutes. Do it your way

A great starting point for your Taiwan Semiconductor Manufacturing research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

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Walmart Inc. (NYSE:WMT) is the largest retailer in the world, with more than 5,200 stores in the United States and nearly 5,600 additional locations overseas.

Although Walmart Inc. (NYSE:WMT) may not deliver strong net growth each year, that does not mean investors are limited to modest returns of around 5% annually. The company consistently generates solid profits, which it uses to create value for shareholders through stock buybacks. By reducing the number of shares outstanding, buybacks make each remaining share more valuable. Since 1995, the company has cut its share count by almost half.

Moreover, Walmart Inc. (NYSE:WMT) is a Dividend King with 52 consecutive years of dividend growth under its belt. Currently, it offers a quarterly dividend of $0.235 per share and has a dividend yield of 0.92%, as recorded on September 20.

While we acknowledge the potential of WMT as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. Investors in Wabash National Corporation (NYSE:WNC) have tasted that bitter downside in the last year, as the share price dropped 44%. That contrasts poorly with the market return of 20%. At least the damage isn’t so bad if you look at the last three years, since the stock is down 29% in that time.

It’s worthwhile assessing if the company’s economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let’s do just that.

Wabash National wasn’t profitable in the last twelve months, it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn’t make profits, we’d generally hope to see good revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In just one year Wabash National saw its revenue fall by 25%. That’s not what investors generally want to see. The stock price has languished lately, falling 44% in a year. That seems pretty reasonable given the lack of both profits and revenue growth. It’s hard to escape the conclusion that buyers must envision either growth down the track, cost cutting, or both.

Coherent Corp. (NYSE:COHR) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 25%.

Even after such a large jump in price, there still wouldn’t be many who think Coherent’s price-to-sales (or “P/S”) ratio of 2.9x is worth a mention when the median P/S in the United States’ Electronic industry is similar at about 2.4x. Although, it’s not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does Coherent’s Recent Performance Look Like?

Recent times have been advantageous for Coherent as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If you like the company, you’d be hoping this isn’t the case so that you could potentially pick up some stock while it’s not quite in favour.

Want the full picture on analyst estimates for the company? Then our free report on Coherent will help you uncover what’s on the horizon.
How Is Coherent’s Revenue Growth Trending?
The only time you’d be comfortable seeing a P/S like Coherent’s is when the company’s growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 23% last year. The latest three year period has also seen an excellent 75% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 9.8% each year over the next three years. That’s shaping up to be materially lower than the 13% each year growth forecast for the broader industry.

In light of this, it’s curious that Coherent’s P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren’t willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Coherent’s P/S

Coherent appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Using the price-to-sales ratio alone to determine if you should sell your stock isn’t sensible, however it can be a practical guide to the company’s future prospects.

When you consider that Coherent’s revenue growth estimates are fairly muted compared to the broader industry, it’s easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

The company’s balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Coherent with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.