Stock Down 40%, But Record Earnings: This Stock Touted as a "Buying Opportunity" [Weekend Money]

Samsung Electro-Mechanics has dropped more than 40% over the past three months, but as the company is expected to post record-high earnings in the third quarter, there are forecasts that its stock price will also show an upward trend going forward.

According to KB Securities, Samsung Electro-Mechanics’ stock price is currently down more than 40% compared to its previous high (based on closing price) of KRW 2.27 million on June 19.

Despite the decline in the share price, the company’s fundamentals have actually grown stronger. During the same period, three long-term supply contracts for multilayer ceramic capacitors (MLCCs) destined for major U.S. big tech companies were announced. In addition, the supply shortage for packaging substrates is expected to persist, making it likely that Samsung Electro-Mechanics will sign further long-term contracts under favorable terms, including prepayments and profit protection clauses. Changmin Lee, an analyst at KB Securities, explained, “With core AI-related components such as MLCCs and flip-chip ball grid arrays (FCBGAs) currently experiencing an unprecedented boom, and with expectations for further improvements in business conditions, the excessive psychological concerns have led to an oversold market, causing a disconnect between the stock price and actual business performance.”

Samsung Electro-Mechanics is projected to post its highest-ever quarterly results in the third quarter of this year. KB Securities estimates that for the third quarter, Samsung Electro-Mechanics will report sales of KRW 3.83 trillion, up 33% year-on-year, and operating profit of KRW 660.1 billion, up 154%, significantly surpassing the market consensus (the average forecast of securities firms). Analyst Lee noted, “Just three months ago, the consensus for third-quarter operating profit was around KRW 470 billion, but we are seeing that estimates have been revised sharply higher in a short period. The reason for the expected earnings surprise is, once again, strong performance in AI server-related products.”

He suggests that now is a buying opportunity at low prices. Lee added, “Among electrical and electronics stocks, Samsung Electro-Mechanics is benefitting most strongly from the AI boom, so we expect the stock to trend upward going forward. The current period should be viewed as a good opportunity for value investing.”

KB Securities maintains a “Buy” rating on Samsung Electro-Mechanics, a target price of KRW 3 million, and continues to view the stock as its top pick in the IT components sector.

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