Lee Chae-won of Korean Investment Value Asset Management and Huh Nam-kwon of Shinyoung Asset Management on Monday said that shares of Samsung Electronics are still undervalued relative to the company's core business. Recent estimates put the tech giant's 2017 operating profit at 50 trillion won, or more than $44 billion, indicating that its stock is still trading at a considerable discount that's up to 30 percent lower to the average price-earnings ratio (PER) on the market. Samsung's own PER is 12 times higher than the median and analysts believe that the Seoul-based consumer electronics manufacturer will maintain that trend in the short term.
While the company's business is expected to do well going forward, its stock prices are less likely to grow in a significant manner by the end of the year due to extremely high expectations, Lee said, adding that Samsung has been doing so well in recent quarters that the company is essentially setting investors up for a disappointment once it fails to repeat its past successes. Regardless, Lee believes that the South Korean original equipment manufacturer (OEM) isn't overvalued and won't be for the foreseeable future, despite the company's efforts to unlock additional shareholder value amidst pressure from investors. The semiconductor division has been one of the firm's main growth engines in recent quarters that posted record profits amidst industry-wide shortages that led to significant price hikes, but its stellar performance likely isn't sustainable in the long term and could start slowing down as early as this year, Lee predicted. Samsung's stock may consequently end up dropping despite the fact that it still isn't completely reflective of the company's value, Choi Woong-pil of KB Asset Management said, implying how that could be a good opportunity to purchase the tech giant's shares at a discount.
Samsung previously promised to take a number of measures to unlock shareholder value over the course of this year, with the firm planning to increase its dividends and purchase close to $10 billion of its own stock in its largest buyback in history. Some of Samsung's more vocal shareholders like Elliott Associates have recently been advocating for the OEM to adopt a holding company structure in an effort to increase its valuation in a significant manner in the future, but the firm's top management dismissed that proposal this spring, labeling it as being unfeasible.