Are Tower Semiconductor Ltd.'s (NASDAQ:TSEM) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?

With its stock down 32% over the past three months, it is easy to disregard Tower Semiconductor (NASDAQ:TSEM). However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Particularly, we will be paying attention to Tower Semiconductor's ROE today. Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. How To Calculate Return On Equity? Return on equity can be calculated by using the formula: Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity So, based on the above formula, the ROE for Tower Semiconductor is:7.8% = US$207m ÷ US$2.6b (Based on the trailing twelve months to December 2024). The 'return' is the amount earned after tax over the last twelve months. That means that for every $1 worth of shareholders' equity, the company generated $0.08 in profit. View our latest analysis for Tower Semiconductor What Has ROE Got To Do With Earnings Growth? Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes. Tower Semiconductor's Earnings Growth And 7.8% ROE On the face of it, Tower Semiconductor's ROE is not much to talk about. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 12%. In spite of this, Tower Semiconductor was able to grow its net income considerably, at a rate of 34% in the last five years. We reckon that there could be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio. We then compared Tower Semiconductor's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 13% in the same 5-year period. NasdaqGS:TSEM Past Earnings Growth April 10th 2025 Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Tower Semiconductor's's valuation, check out this gauge of its price-to-earnings ratio , as compared to its industry. Is Tower Semiconductor Using Its Retained Earnings Effectively? Tower Semiconductor doesn't pay any regular dividends to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above. Conclusion In total, it does look like Tower Semiconductor has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company. If you're looking to trade Tower Semiconductor, open an account with the lowest-cost platform trusted by professionals, Interactive Brokers.With clients in over 200 countries and territories, and access to 160 markets, IBKR lets you trade stocks, options, futures, forex, bonds and funds from a single integrated account.Enjoy no hidden fees, no account minimums, and FX conversion rates as low as 0.03%, far better than what most brokers offer.Sponsored Content