In growth investing, few methods have received as much notice as the one Louis Navellier described in his 2007 book, The Little Book That Makes You Rich. The method uses a fixed process for finding leading growth stocks with eight clear, measurable rules. These rules center on earnings momentum, financial strength, and operational quality, seeking to find companies that are not only growing, but speeding up their growth in a profitable and lasting way. A recent filter using this method has identified a notable name in the global technology field: Taiwan Semiconductor Manufacturing-SP ADR (NYSE:TSM).
A Central Holding for Growth Investors
As the top dedicated semiconductor foundry globally, TSM is the production base for a wide range of technology firms, from smartphone makers to artificial intelligence developers. Its latest financial reports indicate it is performing very well, making it a strong candidate for investors using Navellier's growth-oriented rules. The company's results across the eight main rules show a clear fit with the method's goals.
Fitting the "Little Book" Rules
The value of Navellier's structure is its use of specific, countable signals. Here is how TSM measures up against several of the central rules, using the supplied filter data:
- Positive Earnings Revisions & Surprises: Analysts have notably increased their estimates, with the average EPS estimate for the coming quarter raised by 24.69% in the last three months. Also, TSM has reported four straight positive earnings surprises, with an average beat of 109.63%. These are clear signs that the company is regularly doing better than cautious forecasts, a main idea of the method.
- Strong Growth Measures: The company is showing notable growth speed.
- Revenue increased 30.66% year-over-year and 35.16% quarter-over-quarter.
- More impressive is the earnings growth, with EPS rising 222.03% over the last year and a remarkable 691.08% in the latest quarter versus the year-ago period. This shows the significant operating leverage happening as need for advanced chips stays high.
- Growing Profitability and Solid Cash Flow: Growth is most useful when it is profitable. TSM's operating margin grew by 13.14 percentage points over the past year, showing the company is turning higher sales into earnings effectively. This is further backed by a large 129.29% increase in free cash flow, supplying the monetary support for ongoing capital spending and shareholder benefits.
- High Return on Equity: A key part of the method is judging how well management uses shareholder money. TSM's return on equity (ROE) is 32.74%, which is very high and shows the company creates significant profit from each dollar of equity.
Basic Health and Price Setting
A wider fundamental analysis of TSM supports the filter findings. The company gets a high total score for profitability, with sector-leading margins and returns on capital. Its growth score is also very good, showing both its outstanding past results and solid expected future growth in earnings and revenue. Financial health is acceptable, marked by a workable debt level and good liquidity, though it is a part where the company shows a varied picture next to some others.
The main point of review, as with many fast-growth companies, is price. The analysis shows TSM is priced highly on a plain basis. However, this is viewed next to its unusual growth path and profitability. For growth investors using Navellier's method, paying a higher price for a company showing such definite and strong momentum across all main financial areas can be reasonable, as the method favors growth speed and earnings strength over fixed price ratios.
A Top Choice for the Growth-Oriented Portfolio
Taiwan Semiconductor Manufacturing's recent results offer a clear example of the ideas in The Little Book That Makes You Rich. The company is not just growing, it is seeing speeding sales and earnings, increasing its profitability, creating large cash flow, and reporting steady positive surprises, all while keeping a very high return on equity. For investors looking to create a portfolio of high-grade growth stocks, TSM stands as a basic holding that directly fits a strict, rule-based investment method.
Interested in finding other companies that pass this strict growth filter? You can review the complete list and adjust the rules using the Louis Navellier "Little Book" screen on ChartMill.
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Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. The "Little Book" method is one of many investment approaches, and past results of a filter method do not guarantee future outcomes. Investors should do their own complete research and think about their personal financial situation and risk comfort before making any investment choices.