Bubbled or Not?
Shinyoung Asset Management President Huh Nam-kwon and Korea Investment Value Asset Management Vice President Lee Chae-won, the two tops in value investing, announced mixed outlooks on Samsung Electronics which powered the local stock market's bull run in the first half of this year. The Samsung Electronics share price led the rally from last summer and closed at 2.28 million won (US$2,010) as of June 16, up more than 60 percent from a year earlier.
Huh said that the share price of Samsung Electronics is not high enough considering its fundamentals. According to industry tracker FnGuide, Samsung Electronics’ average annual operating profit this year will reach 50 trillion won (US$44.09 billion), which is nine times higher than the price earnings ratio (PER). So, its shares trade on a discount of 20 to 30 percent to the average PER of listed firms, which is 12 times higher. Huh said, “I think the current share price of Samsung Electronics is not bubbled so we maintain the stock position of Samsung Electronics at around 10 percent of the total assets. Samsung Electronics would be adjusted but the company is not over priced considering its fundamentals.”
On the other hand, Lee raised doubts whether Samsung Electronics will be able to maintain the current level of share prices. When the market greatly reflects vigilance for its performance next year amid high expectations, Samsung Electronics stock prices can be at a standstill or drop. Lee said, “I doubt whether Samsung Electronics can continuously keep up the current trend of profits. The recent semiconductor price hikes are largely due to the fictitious demand for inventory expansion. So, Samsung Electronics can see its share prices decrease when its performance deteriorates.”
KB Asset Management chief investment officer Choi Woong-pil, who is one of second generation leaders of value investing as Lee Chae-won’s kids, said, “Due to high expectations, the stock prices can be sensitive to market situations. We should take precautions against the downward trend rather than expecting an additional rise.”