Amid growing concerns over the peaking of the semiconductor super cycle, the share price of Samsung Electronics Co. continues to fall. The prospect that the company is on track to post the highest performance ever in the third quarter of this year seems to have no effect on its share price. Market experts give a mixed outlook for the stock.
Some say that Samsung Electronics’ growth will be sluggish in the future after the super cycle ends, while others say that its share price will rebound because all unfavorable conditions have already been reflected in it.
The price of Samsung Electronics shares closed at 43,850 won (US$39.06) on the main KOSPI bourse on August 20, down 0.57 percent from the previous trading day. It decreased to 43,500 won (US$38.75) in early trading, reaching a 52-week record low. The company’s stock plunged about 24 percent in less than a year compared to that on November 3 last year when it reached a record high at 57,519 won (US$51.24), or 2.9 million won (US$2,580) before the stock split, during mid-day trading.
Samsung Electronics has continued to establish a new record in performance every year but its price earnings ratio (PER) dropped from 12 in 2016 to 6.2 due to the decrease in stock prices. It falls short of 10.7 of the average PER on the KOSPI market. The company’s price-to-book value (PBR) also stood at 1.5, just over 1 of the liquidating value.
Even though Samsung Electronics has posted the highest results, its share price has continued to plunge. It means that the company has already become a value stock, instead of South Korea’s leading growth stock, in terms of valuation index. Samsung Electronics saw its stock price reach 3 million won (US$2,673) before the stock split with a record high rally until last year. So, its shares were considered a growth stock.
As the company’s stock prices have remained at a low point, the market considers Samsung Electronics as the investment for a value stock again. This is because its share prices have been excessively undervalued compared to the company’s growth potential, though its consensus estimate for operating profit in the third quarter amounts to 17.3 trillion won (US$15.41 billion), reaching a record high.
However, foreign investment banks (IBs) look at Samsung Electronics with a different point of view. Morgan Stanley recently analyzed that the super cycle boom has ended considering the fact that the demand of smartphones and servers, which have propped up the memory chip market, such as DRAMs and NAND flash, is on the decrease and China, which declared to step up its efforts to become a major player in the semiconductor market, is to push into the NAND flash market next year. In other words, Samsung Electronics will have a hard time to show a growth.
In this regard, the domestic IB industry said that the “theory of super boom cycle for semiconductors” by some foreign securities companies is an ‘excessive logical jump.’ This is largely due to the fact that the semiconductor industry will continue to show a growth for quite a long time as memory chips are a core component of industries that will lead the fourth industrial revolution, including artificial intelligence (AI). In addition, the demand of semiconductor will continuously rise because cloud service providers are expected to accelerate their investment in in-memory computing. It is required to use more server DRAM chips in in-memory computing, which saves all the data in DRAMs.