"Strong Earnings, But... SK hynix Excluded from Top 10 U.S. 'Best Stocks to Buy Now'"
U.S. Investment Media The Motley Fool Analysis
Low PER Raises Doubts About Performance Sustainability
An overseas investment media outlet has issued a pessimistic outlook, suggesting that the upward momentum of SK hynix's stock price may remain limited. This is due to the cyclical nature of the memory semiconductor market and aggressive supply expansion by competitors.
On August 17 (local time), U.S.-based investment media outlet 'The Motley Fool' reported that SK hynix's revenues have increased by 257%, yet it continues to maintain a low price-to-earnings ratio (PER). The PER is calculated by dividing the stock price by earnings per share (EPS), and is one of the auxiliary indicators that evaluates a company's stock valuation relative to its earnings. Even if a company's operating profit rises significantly, a low PER suggests that the market doubts the sustainability of its performance.
SK hynix was not included in the '10 Best Stocks to Buy Now' list, selected by 'Stock Advisor,' a stock recommendation section by The Motley Fool.
According to The Motley Fool, SK hynix's PER based on its most recent 12-month results stands at 8.1, which is less than half that of Micron's 21.7 and SanDisk's 21.4.
The Motley Fool analyzed that the unique cyclical volatility of the semiconductor industry is a particular drag on SK hynix's share price. The semiconductor industry is known for its cycle of booms and busts; from Texas Instruments, which pioneered the industry in the 1950s, to today’s key AI semiconductor company Nvidia, none are exempt from these fluctuations.
The outlet also pointed out that even Micron, which is currently recording a PER higher than SK hynix's, underperformed the S&P 500 index on the New York Stock Exchange between 1995 and 2015 after its initial public offering (IPO) in 1984.
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The Motley Fool further took a cautious stance on whether the high growth rate of memory chip companies can be sustained over the long term. At present, demand for key memory components such as DRAM significantly exceeds supply, but as DRAM prices have surged, manufacturers are competitively ramping up production. Once the supply shortage is alleviated, memory prices are likely to fall, potentially slowing the earnings growth rate of the companies.
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