Earnings growth research: Taiwan semiconductor manufacturing company Limited (TSM), teck Resources limited (TECK)

Taiwan semiconductor manufacturing company Limited (TSM), teck Resources limited (TECK)

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) are making a strong comeback as they have jumped 45.16% since bottoming out at $22.75 on May. 12, 2016. Meanwhile, due to an ongoing pressure which caused a decline of almost -3.13% in the past five days, the stock price is now up 10.71% so far on the year — still in strong territory. In this case, shares are down -5.07% from $33.53 , the 52-week high touched on Mar. 21, 2017, and are keeping their losses at 30.53% for the past 12 months.

Is It Worth the Risk?

Brokerage houses, on average, are recommending investors to hold Taiwan Semiconductor Manufacturing Company Limited (TSM)’s shares projecting a $31.85 target price. What do this target means? Price targets reflect what the analyst believes a stock will be worth four quarters into the future. Are investors supposed to sell when the stock hits the target? Price targets frequently change, depending on the outlook for a company’s earnings. Sometimes it may seem like it, but analysts don’t just pull their price targets out of thin air. Typically, they estimate what the company’s earnings and cash flow will be for the next couple of years, and then apply a ratio – such as a price-to-earnings ratio – to those estimates to determine what the future stock price should theoretically be.

Revenue Growth Rates

TSM’s revenue has grown at an average annualized rate of about 17.3% during the past five years. However, the company’s most recent quarter increase of 28.8% looks attractive.

Comparing Profitability

 While there are a number of profitability ratios that measure a company’s ability to generate profit from the sales or services it provides, one of the most important is the net profit margin. It tells us what percentage of revenue a company keeps after all its bills are paid. While the higher this number is, the better, there is no gold standard. That’s why this number shouldn’t be looked at in isolation, but should be compared to a company’s peer group as well as its sector. Currently, Taiwan Semiconductor Manufacturing Company Limited net profit margin for the 12 months is at 35.27%. Comparatively, the peers have a net margin -7.09%, and the sector’s average is 4.65%. In that light, it seems in good position compared to its peers and sector.

Teck Resources Limited (NYSE:TECK) is another stock that is grabbing investors attention these days. Its shares have trimmed -17.16% since hitting a peak level of $26.6 on Dec. 07, 2016. Thanks to an increase of almost 3.43% in the past one month, the stock price is now outperforming with 9.84% so far on the year — still in strong zone. In this case, shares are 178.84% higher from $7.93, the worst price in 52 weeks suffered on Apr. 15, 2016, and are keeping their losses at 18.22% for the past six months.

Trading The Odds

The good news is there’s still room for the share price to grow. At recent closing price of $22, TECK has a chance to add $4.98 or 22.64% in 52 weeks, based on mean target price ($26.98) placed by analysts.The analyst consensus opinion of 2.1 looks like a hold. It has a 36-month beta of 1.41 , so you might be in for a bumpy ride.

EPS Growth Rates

For the past 5 years, Teck Resources Limited’s EPS growth has been nearly -16.7%. Sure, the percentage is discouraging but better times are ahead as looking out over a next 5-year period, analysts expect the company to see its earnings go up by 2.09%, annually.

Is it turning profits into returns?

Two other important profitability ratios for investors to know are both returns-based ratios that measure a company’s ability to create wealth for shareholders. They are return on equity and return on assets. Return on equity measures is a company’s ability to turn an investor’s equity into profit. The higher the return on equity, the better job a company is at optimizing the investment made on shareholders’ behalf. Teck Resources Limited’s ROE is 6.14%, while industry’s is 8.2%. The average ROE for the sector stands at 13.5%.

Return on assets, on the other hand, measures a company’s ability to turn assets such as cash, buildings, equipment, or inventory into more assets. TECK’s ROA is 2.96%, while industry’s average is 3.1%. As with any return, the higher this number the better. However, it, too, needs to be taken into the context of a company’s peer group as well as its sector. The average return on assets for companies in the same sector is 8.39.