Samsung Electronics shares lag record earnings — but history says wait two months

Samsung Electronics became the first South Korean company to post quarterly operating profit exceeding 100 trillion won ($74.7 billion), yet analysts say it typically takes about two months for strong earnings to be reflected in the share price. The stock fell more than 2 percent after Thursday's earnings release, but a decade of data shows results tend to feed through to the share price with a lag. Solid industry conditions and an aggressive shareholder-return policy are expected to serve as the main drivers of future share price gains, analysts added.

Samsung Electronics recorded operating profit of 107.4 trillion won in the third quarter of this year, a 782.5 percent jump from the same period a year earlier, according to the financial investment industry Monday. Quarterly operating profit of 100 trillion won is a milestone no company in the world has reached except Saudi Arabia's state-owned Aramco. The share price nonetheless fell more than 2 percent on the day of the announcement and edged down further in morning trading Monday.

An analysis of Samsung Electronics' earnings data over the past 10 years — covering 40 quarters — by Toss Securities found that the share price rose on the day of a preliminary earnings release in only 14 instances, putting the probability of a gain at just 35 percent. The stock has more often than not declined on earnings day.

Notably, the correlation coefficient between earnings and share price was negative. "When results come in strong, the share price tends to fall, and when results disappoint, the stock tends to rise," said Han Sang-won, a researcher at Toss Securities. "That is why earnings releases are often described as a case of 'miraculous pre-pricing.'"

Extending the time horizon makes the relationship clearer. In the week following a preliminary earnings release, the share price rose about 59 percent of the time. Even so, the correlation coefficient between earnings and share price remained negative after one week.

The correlation turns positive roughly one month after the release. "If you are counting on strong earnings to push the share price higher, you need to allow at least a month," Han said. "Around the two-month mark, that relationship strengthens further and the expected return rises to as high as 3.7 percent."

While earnings may appear unrelated to the share price in the short term, analysts say this is because results are priced in with a delay. Earnings tend to be reflected in the share price over roughly two months, after which — around the three-month mark — the relationship between results and subsequent price movements begins to weaken somewhat.

Han attributed the roughly two-month lag to the timing of when forecasts for the following quarter are updated. "Figures with high visibility emerge as changes in the industry and the company during that period are factored in," he said.

On the third-quarter results specifically, Han said Samsung "achieved strong earnings through profitability improvements driven by higher average selling prices, despite a decline in the won-dollar exchange rate," adding that "the solid industry conditions have once again been proven in the numbers."

Major domestic brokerages are also leaning toward further share price upside, citing the robust memory chip market conditions and improving fundamentals that underpinned the record-breaking results.

"Even accounting for the capacity scale-up schedules of the three major DRAM producers, the current supply shortage is likely to persist through 2028," said Kim Rok-ho, a researcher at Hana Securities. "Because considerable time remains before supply-demand conditions improve, the probability of a decline in memory chip prices appears very low."

Ryu Hyeong-geun, a researcher at Daishin Securities, said "both industry conditions and fundamentals are improving" and recommended focusing on several developments: a DRAM-driven earnings surprise, a production policy aligned more closely with actual customer demand to extend cycle durability, a recovery in HBM business competitiveness, and stronger cost competitiveness built on improved process yields.

Shareholder returns are also cited as a key variable. "A shareholder-return policy that exceeds market expectations is anticipated to act as a powerful catalyst for a share price re-rating," said Kim Dong-won, a researcher at KB Securities. "Samsung Electronics is a company operating at the level of the world's No. 1 operating profit, and there is no justification for applying a valuation discount to the world's largest profit-generating enterprise."