TSM 561.00/Share, Logic?

[Arthur Hanson]

Roland Shu of Citigroup has had a 561.00/share price target on TSM and for a long time I thought he was totally out there, but after looking at the figures and the insanity of Bitcoin it may have some reality in this crazy market in a crazy year. I feel the covid crissis and government money printing world wide gone crazy has given this prediction maybe a sense of reality. TSM has a literally amazing moate and a key place in the future of technologies that are the main drivers behind almost all progress in the world. TSM with a net profit margin of 37.95% on top of a growth rate of 24.2% are highly unusual in a company of this size. These figures are far in excess of most successful companie and when put together could easily justify a price far higher than the current market price. TSM changed the rules of the semiconductor industry and also increasing not only its lead over others, but the size of its supporting ecosystem. Any thoughts or opinions solicited and welcome. In the interests of full disclosure I have a substantial holding for at least ten years and it's a long term holding which I also have traded occaisionly, like many others I have. Addition: This might also be a function of the 28 to 1 ratio Taiwanese currency and the 5 to 1 ratio of ADR shares to Taiwanese shares, but the figures still could still justify the price of an ADR share in US dollars.


Raymond Shu has a return of 34% on stocks covered and a success rate of 71% for stocks covered.

 

[count]

I'm long TSMC (and have been for years), but I still think $561 is insane - that's about 5x the current share price, and shares aren't exactly cheap anymore. But who knows? I've been surprised all last year by companies like Zoom reaching nosebleed valuations. Seems like anything is possible is this crazy market.

 

[TxAggie1995]

I've been buying a couple shares every paycheck.

TSMC's P/E is actually pretty reasonable given the current crazy market (38 for them vs 25 for the NASDAQ as a whole) and there is nowhere for them to go but up as they consolidate their manufacturing lead. Don't know what a fair target price for them is, but I see present day $TSM as low risk and high reward.

 

[Arthur Hanson]

I feel the analysts might be looking at the combination of a far superior growth rate multiplied by a far superior profit margin to get the figure he stated. As TSM compounds on this figure there might be potential to support this price. I'm sure the analysts is looking at companies like Tesla and others that have the same number, but are far ahead in market capitalization.

 

[hga]

multiplied by a far superior profit margin

I've been getting the impression one of the secrets of TSMC's success is not being greedy, and doing real instead of finanicial engineering. If so, where does a "far superior profit margin" come from, until, for example, the race to smaller nodes ends?

 

[count]

I've been getting the impression one of the secrets of TSMC's success is not being greedy, and doing real instead of finanicial engineering. If so, where does a "far superior profit margin" come from, until, for example, the race to smaller nodes ends?

Look at the financials, TSMC has really great margins. As for where they come from, I think scale, execution, and the fact that they now have an almost monopoly at the leading edge. They aren't greedy, but they aren't giving away wafers either.

The business model is pretty simple if you break it down. You offer the best leading edge process, securing design wins. You establish good relationships with your customers. It's pretty hard to move fabs so as long as customers, are getting reasonable pricing, and have a good relationship with you, they will probably never leave. Even after the product matures and no longer needs to be manufactured on the leading edge. Furthermore, because competition is pretty thin at the top, there aren't many places to go if you need capacity anyway. All of this allows gives TSMC a fair bit of control over their margins. As long as they aren't greedy and don't piss of their customers, they can enjoy pretty solid margins.

 

[hga]

count, I agree with all your points, which are also aligned with Mr. Neni's general position on TSMC's ecosystem quality. I'd go even further, and not being a polite as him point out it makes a difference if you're truthful when your competitors shade the truth at best to minimize their failures (or so I have recently gathered about Samsung in reading comments here, and Intel's process saga is well known, and why I'm paying much more attention to this topic as of late now that their 7 nm is in trouble).

My point is that your TSMC "can enjoy pretty solid margins" strikes me as quite a distance from conjuring up a "far superior profit margin" in the future. If that's a qualitative difference it would imply changes to TSMC's business model that would probably not be good for its customers, and/or perhaps failures to execute by others than bring really substantial economies of scale. Perhaps even a bit of monopsony purchasing power, although, again, TSMC wins by not being greedy.

 

[Arthur Hanson]

I don't need to conjure up anything, TSM's profit margin and growth rate are superior and compounding is the greatest force there is in the physical world or finance. I have used compounding to achieve what I never thought possible. I think the number is out there, but multiply other companies growth rate times profit margin and results and staggeringly different. Do it for other companies in their field and TSM leads by a substantial margin.

 

[Paul2]

Roland Shu of Citigroup has had a 561.00/share price target on TSM and for a long time I thought he was totally out there, but after looking at the figures and the insanity of Bitcoin it may have some reality in this crazy market in a crazy year. I feel the covid crissis and government money printing world wide gone crazy has given this prediction maybe a sense of reality. TSM has a literally amazing moate and a key place in the future of technologies that are the main drivers behind almost all progress in the world. TSM with a net profit margin of 37.95% on top of a growth rate of 24.2% are highly unusual in a company of this size. These figures are far in excess of most successful companie and when put together could easily justify a price far higher than the current market price. TSM changed the rules of the semiconductor industry and also increasing not only its lead over others, but the size of its supporting ecosystem. Any thoughts or opinions solicited and welcome. In the interests of full disclosure I have a substantial holding for at least ten years and it's a long term holding which I also have traded occaisionly, like many others I have. Addition: This might also be a function of the 28 to 1 ratio Taiwanese currency and the 5 to 1 ratio of ADR shares to Taiwanese shares, but the figures still could still justify the price of an ADR share in US dollars.


Raymond Shu has a return of 34% on stocks covered and a success rate of 71% for stocks covered.

I believe its PTT kids doing mob rush on the stock.

Taiwan has that strange online subculture of anonymous Internet Warren Buffets who organise in dark corners of the Internet to do runs of banks, stock markets, and such just for lulz, and some times some professional pump'n'dump artists there join them too.

 

[Paul2]

I think something like that hast started to happen in America too after reading recent news.

 

[kvas]

561.00/share seems like a TWD target for the Taiwanese shares (that are currently trading for 591 TWD). In USD this seems excessive. Or am I wrong? Source?

 

[Arthur Hanson]

Update, he took his price target to $20.00, so he obviously made the gross mistake of mixig up Taiwanese and US dollars and the fact that a single ADR represents I believe 7 Tiawnanese shares.

 

[hist78]

One TSM ADR is equivalent to 5 TSMC shares.

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