Samsung Electronics' PER hits 4x despite record quarterly profit surpassing Nvidia

Samsung Electronics has fallen into a state of extreme undervaluation even as it posted quarterly operating profit surpassing Nvidia to reach the highest level of any company in the world, analysts say.

The company's operating profit for the third quarter topped 100 trillion won ($74.7 billion), yet its price-to-earnings ratio remains at roughly 4x. With steep earnings growth expected to continue next year, driven by high-bandwidth memory chips, analysts say the stock is likely to be revalued upward.

According to KB Securities, Samsung Electronics' PER based on projected 2027 earnings stands at just 4x. The PER measures how many times a stock trades relative to the company's earnings per share — the lower the figure, the more undervalued the stock is relative to its profits.

"The current situation, with the PER stuck at 4x, represents extreme undervaluation, and it is hard to find any justification for a valuation discount," said Kim Dong-won, head of research at KB Securities.

Analysts say the current share price fails to adequately reflect the company's value given its record-breaking earnings.

Samsung Electronics disclosed Thursday that its consolidated operating profit for the third quarter rose 782.5 percent year-on-year to 107.4 trillion won, a preliminary figure. It marks the first time a domestic company has exceeded 100 trillion won in quarterly operating profit. The operating profit margin hit a record high of 55.1 percent.

The results are overwhelming even by global standards. According to KB Securities, Samsung Electronics' third-quarter operating profit translates to $80.3 billion, exceeding Nvidia's projected quarterly operating profit of $71.7 billion — making it the highest quarterly operating profit of any company in the world.

The earnings growth trajectory is expected to continue for now. KB Securities estimated that Samsung Electronics' memory chip division generated operating profit of 109 trillion won in the third quarter — enough to offset losses in other business units such as mobile (MX) and still deliver total operating profit of 107.4 trillion won. For the fourth quarter, KB Securities projected operating profit of 114 trillion won, up 6 percent quarter-on-quarter, with the operating profit margin rising further to 58 percent.

HBM is seen as the key driver of earnings improvement next year. KB Securities forecast that Samsung Electronics' HBM selling prices in 2027 will rise more than 100 percent from this year's levels, on the expectation that next-generation HBM4 will secure annual supply contracts at the highest prices among the three major DRAM makers. The share of HBM4 in Samsung's total HBM sales is also expected to expand from 40 percent this year to 80 percent next year.

Yet Samsung Electronics' share price has moved in the opposite direction from its earnings growth. According to Korea Exchange, the stock closed Thursday down 2.42 percent at 262,000 won, after opening up 0.37 percent at 269,500 won before reversing course and extending its losses.

The decline is attributed to dampened investor sentiment following a sharp rise in US Treasury yields. Overnight on Wall Street, major indexes fell across the board as yields surged. The yield on the 10-year US Treasury note climbed above 5.36 percent during trading, its highest level since 2002, while the Philadelphia Semiconductor Index fell 1.15 percent.

There is also a perception in the market that Samsung's strong earnings had already been priced in. Analysts say a "sell-on" dynamic emerged around the earnings announcement, with investors taking profits on the news.

Heavy selling by foreign and institutional investors added further downward pressure. On Thursday, foreign investors and institutions net sold 1.99 trillion won and 1.67 trillion won worth of shares, respectively, on the Kospi, while retail investors net bought 2.9 trillion won. SK hynix (853.6 billion won), SK Square (353.9 billion won) and Samsung Electronics (290.7 billion won) ranked first through third among stocks with the highest foreign net selling.

Despite the short-term share price decline, securities analysts broadly expect Samsung Electronics to be revalued. On top of earnings growth, the prospect of expanded shareholder returns is seen as another factor that could lift the company's valuation. KB Securities said Samsung Electronics may pursue dividend increases and share buyback cancellations simultaneously, and could also commit shareholder returns exceeding 50 percent of free cash flow.

"HBM4, priced highest among the three DRAM makers, will drive up the average selling price of DRAM from the first quarter of next year, and a shareholder return policy that exceeds market expectations will serve as a powerful catalyst for a share price rerating," Kim said.