Samsung Electronics Co. Ltd.’s (SSNLF, Financial) (XKRX:005930, Financial) upward movement started in January 2016 and the stock appreciated more than 100%. The tech giant was off to a great start heading into 2017, reaching a new all-time high. The stock, however, has taken a hard hit since then, presenting a good entry point for investors.
Samsung reported stunning second-quarter results last month. For the quarter, the company posted earnings of 61 trillion Korean won ($54.7 billion), a surge of almost 20% year over year.
On the other hand, its gross profit margin of 47% was up from 42% in the same quarter a year ago. Most importantly, its total operating profit was $12.67 billion, representing a surge of 72.7% compared to the year-ago period.
The tech giant’s second-quarter results were driven by strong performance of its semiconductor business, which includes logic chips and memory products. Revenue from this segment grew 46%, from $10.7 billion to nearly $15.8 billion year over year.
While the company’s memory business performed much better than expected, its non-memory business was almost flat. The memory segment grew from $7.5 billion to $12.5 billion, while non-memory crawled from $3.2 billion to $3.3 billion.
Consumer demand for more powerful devices and supply constraints are driving prices of both DRAM and NAND memory chips up, broadening profit margins. Considering the robust outlook for the internet of things (IoT), autonomous cars and cloud computing markets, Samsung appears to be in a great position to benefit in the coming years.
Revenue from Samsung's mobile business grew 11% year over year to $26 billion, up from $23.42 billion in the comparabel quarter of 2016. Competition in the smartphone market is becoming even more fierce due to cheaper mobile devices from Chinese companies like Xiaomi and Oppo.
Despite the continuously growing competition, Samsung managed to increase its revenue, which indicate its mobile business has not yet peaked. However, the same cannot be said about the mobile division’s profitability as it plunged slightly from $3.88 billion to $3.65 billion.
Several analysts said sales of the company’s new flagship smartphones, Galaxy S8 and S8 Plus, have not surpassed those of Galaxy S7 models by as much as the market had projected. However, the company said sales of Galaxy S8 models from April are approximately 15% higher compared to its predecessor.
While the Samsung Galaxy Note 7 was a disaster, the company is now preparing to launch the new Galaxy Note 8. The smartphone will feature six gigabytes of RAM and will be the company's first device priced over $1,000.
Apart from the semiconductor and mobile businesses, Samsung’s display-panel business also continues to grow at a healthy rate. Revenue from this division increased 20% year over year.
Most importantly, the operating profit from this segment increased from just $125 million to more than $1.5 billion. Samsung has also received an order for 70 million OLED panels from Apple Inc. (AAPL, Financial) for its upcoming iPhone 8.
Summing up
When it comes to the high-end smartphone market, Samsung and Apple are the undisputed leaders. Samsung is well aware the smartphone market is getting crowded with cheaper competitors. To overcome this issue, it continues launching exciting and affordable devices.
Moreover, the company is also aggressively focusing on its semiconductor business. When Samsung’s mobile business eventually reaches its peak, the semiconductor business will help it to grow well in the forthcoming years.
The company offers a dividend yield 1.16%, which is not impressive. However, its dividend payout ratio currently sits well below 50%, suggesting it still has plenty of room to grow its dividend in the future.
Despite rising approximately 100% over the past 20 months, the stock currently trades at a price-earnings (P/E) ratio of 11.60, suggesting it is highly undervalued. As an outcome, investors looking to initiate a position in the stock should act now as it is down nearly 12% from its all-time high.
Disclosure: No position in the stocks mentioned in this article.
