Taiwan Semiconductor Reaching Oversold Levels Not Seen In 2 Years

Taiwan Semiconductor (TSM) has gone through a downswing over the last three months with the stock falling over 20% in the process. This pullback has caused the weekly stochastic indicators to drop to oversold territory and their lowest reading since June 2019. The stock was trading below $40 a share back then and it would go to trade above $140 this past February. The 10-week RSI dropped below the 50-level recently and it’s the first time in a year that the indicator has been that low.

TSM Tickeron TM.png

Personally, I think the selling is overdone at this point and it looks like the $179.80 area could be acting like a possible double-bottom pattern. In order for that pattern to be confirmed the stock will need to move above the high between the two lows. In this case, the high was $127.40.

Earnings and Sales Increased at a Faster Rate Last Quarter

Taiwan Semiconductor has seen earnings grow by 19% per year over the last three years while sales have increased at a rate of 13%. When the company reported first quarter results back on April 15, the company saw earnings jump 28% while sales increased by 24%. At this time the consensus estimate for Q2 earnings, due out in mid-July, reflects an expected increase of 16.7% and sales growth of 25.7%. For the year earnings are expected to increase by 16.5% and sales are expected to jump 22.3%.

With such strong growth, Taiwan Semiconductor gets some pretty strong fundamental ratings on the Tickeron Fundamental Screener. The company scores very well in the Outlook Rating, the Valuation Rating, and the Profit vs. Risk Rating.

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In addition to those high marks, Taiwan Semi has great profitability measurements. The return on equity is at 29.7% and the profit margin is 36.4%.

Sentiment is Skewed to the Bullish Side

Looking at the sentiment indicators for Taiwan Semiconductor, two of the three that I watch are pointing to greater optimism than the average stock. The only area where we see slightly more pessimism is in the options market. There are 512,152 puts open and 432,868 calls open at this time. This gives us a put/call ratio of 1.18. The average ratio falls in the 0.9 to 1.1 range, so Taiwan Semi’s isn’t too far out of line.

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