Why Samsung’s Stock Is Up 30% This Year

SSNLF: Samsung Electronics logo
SSNLF
Samsung Electronics

Samsung Electronics‘ (OTC:SSNLF) stock has soared by over 30% this year, touching an all-time high, significantly outperforming the Korean market and the broader technology space. Below we take a look at some of the key factors driving the stock’s outperformance this year.

See our complete analysis for Samsung

Samsung’s Tech Investments Are Driving Earnings

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Samsung recently reported its biggest quarterly profit in two years, despite headwinds in the broader smartphone and electronic components markets, as its investments in cutting-edge technologies has started to pay off.  Samsung has re-established itself as a force in the smartphone industry after two years of lackluster sales, with innovative new handsets such the Galaxy S7 Edge and Note 7. The new handsets, which sport curved screens and strong industrial designs, have helped Samsung differentiate itself from Chinese value vendors and Apple, enabling it to significantly improve its pricing power. For instance, the Note 7, which starts at $850 – the highest launch price for a Samsung smartphone – is currently in short supply in many countries.  Samsung’s share of the global smartphone market rose from 21.3% in Q2 2015 to 22.4% in 2016 per IDC, while smartphone operating profits jumped by about 57% year-over-year during Q2. Samsung’s semiconductor business has also been able to navigate challenges in the memory markets, by focusing on value-added memory products as well as non-memory products such as app processors and imaging sensors.

Valuation Multiple Improving 

Samsung’s earnings multiple is also trending upwards, standing at about 10.7x the fiscal 2017 17 consensus, per Reuters. While this is partly attributable to the firm’s improving outlook and product pipeline, there could also be other factors. For instance, Samsung has taken steps to return a greater portion of its cash holdings (~ $69 billion as of June 2016) to shareholders. Samsung announced a 11.3 trillion won ($9.9 billion) share buyback late last year and also indicated that it could return 30% to 50% of its free cash flows over the next three years to stockholders, primarily via dividends. [1]

Samsung Electronics is part of a family-run conglomerate and its ownership structure is extremely complex, with multiple cross-shareholdings involving other firms in the Samsung Group and the promoter family. However, the group has been taking small steps to simplify its governance structure via a series of mergers and asset sales, and this could also reduce any corporate governance discount that investors assign to the company and its stock.

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Notes:
  1. Samsung Electronics unveils $9.9 billion buyback, Reuters, October 2015 []