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Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Taiwan Semiconductor Manufacturing.

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Taiwan Semiconductor Manufacturing’s valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

For a profitable and established company like Taiwan Semiconductor Manufacturing, the Price-to-Earnings (PE) ratio is a tried-and-true benchmark. It works well because it compares the current share price with the company’s earnings, helping investors judge whether the stock offers good value relative to its profitability.

When assessing PE ratios, it is important to remember that higher growth rates and lower risk profiles often justify a higher PE. In contrast, slower-growing or riskier companies typically deserve lower multiples. In other words, what counts as a “fair” PE is shaped by factors like future earnings prospects, company stability, and overall industry sentiment.

TSMC currently trades at a PE ratio of 23.9x. This compares to an industry average of 35.9x and a peer group average of 67.0x, indicating the stock trades at a noticeable discount to both its sector and closest competitors. However, those benchmarks are often blunt tools as they do not factor in nuances like TSMC’s specific growth rate or risk profile.

This is where Simply Wall St’s proprietary “Fair Ratio” comes into play. Think of the Fair Ratio as a customized benchmark that calculates what PE you should expect for TSMC, based on its unique mix of earnings growth, margins, industry trends, company size, and risk. It goes further than a straight comparison with peers and offers a more meaningful gauge for fair value.

TSMC’s Fair Ratio stands at 43.5x. Its current PE of 23.9x is materially below this, hinting at a significant undervaluation even after considering growth and risk factors. For investors, this suggests the stock could have substantial upside left if these fundamentals persist.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Earlier we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply the story you believe about a company’s future, brought to life through your assumptions for key numbers such as revenue, margins, and fair value, not just what the market or analysts think. Narratives make it easy to connect the bigger picture (how the world is changing, company strategies, industry shifts) to a detailed financial forecast, allowing you to set your own fair value estimate based on your unique perspective.

On Simply Wall St’s Community page (used by millions of investors), Narratives are accessible tools that help you see how your personal viewpoint compares to others, and they dynamically update whenever new news or earnings reports are released. By comparing your Fair Value to the current Price, Narratives provide timely insight into whether it might be time to buy, sell, or hold.

For Taiwan Semiconductor Manufacturing, for example, one investor may have a Narrative projecting stable growth with a fair value of $118.4 per share based on continued geopolitical stability, while another expects much lower returns if risk factors play out differently. This shows just how differently you can interpret the same company.

Do you think there’s more to the story for Taiwan Semiconductor Manufacturing? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include TSM.

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