Barbarian At The Gate: Taiwan Semiconductor Manufacturing (TSM)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Taiwan Semiconductor Manufacturing ( TSM) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Taiwan Semiconductor Manufacturing as such a stock due to the following factors:

  • TSM has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $227.7 million.
  • TSM has traded 8.1 million shares today.
  • TSM traded in a range 207.1% of the normal price range with a price range of $0.58.
  • TSM traded above its daily resistance level (quality: 18 days, meaning that the stock is crossing a resistance level set by the last 18 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on TSM:

Taiwan Semiconductor Manufacturing Company Limited engages in the computer-aided design, manufacture, packaging, testing, sale, and marketing of integrated circuits and other semiconductor devices. The stock currently has a dividend yield of 1.6%. TSM has a PE ratio of 2. Currently there is 1 analyst that rates Taiwan Semiconductor Manufacturing a buy, 2 analysts rate it a sell, and 1 rates it a hold.

The average volume for Taiwan Semiconductor Manufacturing has been 12.9 million shares per day over the past 30 days. Taiwan Semiconductor has a market cap of $125.5 billion and is part of the technology sector and electronics industry. Shares are up 8.4% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Taiwan Semiconductor Manufacturing as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 0.5%. Since the same quarter one year prior, revenues rose by 34.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • TSM's debt-to-equity ratio is very low at 0.24 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 2.75, which clearly demonstrates the ability to cover short-term cash needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, TAIWAN SEMICONDUCTOR MFG CO's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • The gross profit margin for TAIWAN SEMICONDUCTOR MFG CO is currently very high, coming in at 73.28%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 36.14% significantly outperformed against the industry average.
  • Net operating cash flow has increased to $4,539.92 million or 34.72% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 14.73%.

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