Samsung (SSNLF.PK) is one of the largest companies in the world. The company employs more than 300,000 people in more than 100 countries and it is highly profitable. Samsung is probably the only company in the world that causes Apple's (AAPL) management to lose sleep at night. If the company was trading in one of the American stock exchanges such as NYSE or Nasdaq, it would be probably rated as a "strong buy" because of its strong fundamentals. American investors can get the company's ADR (American Depositary Receipt) shares; however, these shares don't have much volume or liquidity.
The American Depositary Receipt Shares
Currently, Samsung's ADR shares trade for $1399 per share. Keep in mind that these shares don't reflect the entire company of Samsung; rather it reflects Samsung Electronics, which is only part of the Samsung corporation. The average volume on these shares is only 66. Some days, the volume will be zero as the shares will not change hands on certain days.
Of course, this makes it a very difficult investment for American investors. The low volume of this stock makes the share price extremely volatile and easy to manipulate. In addition, the low liquidity makes it difficult for people to get out when they feel like selling their shares.
The Korean Shares
In South Korea, the company's shares are doing really well. Being the largest company in the country helps Samsung attract investors from different levels and backgrounds across the country. Samsung's Korean shares are up by 45% since the beginning of the year. In the last 3 years, the share price has nearly tripled. The company's current market value is $215 billion and its P/E value is as low as 11. Given the company's growth prospects and cash reserves, the share price could be a lot higher than it is today.
Why Samsung Should Care?
So, we established that Samsung is a great investment and American investors could benefit greatly from it if Samsung was in NYSE or Nasdaq, but why should Samsung care about American investors? I believe that having regular shares traded in an American exchange would help the company greatly.
First of all, it's good for business. Americans might be more likely to buy Samsung products if they can buy Samsung's shares. I know a lot of people that choose Apple products over competition partly because they own Apple shares. When you own a part of a company, you want that company to do well, so you feel good about buying their products. When you can't buy shares of a company conveniently, it feels like you can't build a strong rapport with the company. Even though all Apple products are built in China, we perceive Apple's products as American products. After all, perception can be as strong as (if not even stronger) than the reality in many cases.
Second, in times of uncertainty, American markets tend to over-perform foreign markets. There is far less volatility in American stock exchanges than the rest of the world. This is especially true after the last global recession in 2009. In 2011, American exchanges were some of the very few exchanges that ended the year on a positive note, whereas most other exchanges ended the year in red territory. While the developing markets will usually outperform the developed markets at a time of global economic boom, the current economic outlook will favor the developed markets until the world economy can get going again. If Samsung is included in one of the major American exchanges, this can help the company to protect or increase its market value greatly.
Outlook for Samsung
Samsung will remain as the world's largest mobile phone supplier for the foreseeable future. Apple doesn't offer the variety of products Samsung does, and Nokia (NOK) is not likely to pass Samsung in volume anytime soon. Not only Samsung sells a lot of phones, it actually makes a lot of profits in these phones too. In fact, Samsung and Apple account for 106% of all global profits in the smart phone market. These companies claim more than 100% share in global profits because all other major smartphone companies fail to be profitable, which gives them a negative share in global profits.
Samsung's management really knows how to take a product, improve it in many ways, sell it and continue to get high profit margins. When Apple first started to sell its smartphones for a huge premium, many people thought that no other company could get away with this. Samsung actually ended up getting away with selling its products with a similar premium to Apple's products.
If Samsung was trading in an American exchange, its market value would be easily double of what it is today. Despite being a strong growth story, the company trades for a forward P/E of 9 and current price to cash flow ratio of 7. Given Samsung's growth rate and dominance in the smartphone market, it could easily support a P/E ratio closer to 20 and a price to cash flow ratio closer to 15.
As for Samsung's legal battles with Apple, I don't think the battles will result in any serious damage for either side. So far, both sides have gained some minor victories over the other, but there hasn't been any decision that can make a real impact to either company. Samsung might get fined here and there, but as long as the company doesn't get its flagship products banned in the USA or Europe, things should be fine. It's only a matter of time before the judges get sick of these legal battles and start dismissing cases all around the world.
Samsung is doing so well in the smartphone market but this is not the only market where Samsung is crushing the competition. The company is also very profitable in other products such as TVs and other home electronics. In addition, Samsung is a direct supplier for many companies including Apple, so even if it loses some market share to Apple, it will still earn some money.
Of course, the company is not absolutely perfect as no company is. A lot of times Samsung is being criticized for having low quality products that don't last a long time, ripping off ideas from competitors and not being very innovative. Apple is far more likely to redefine the technology than Samsung, but Samsung is just as likely as Apple to turn the new technology into profits. Keep in mind that Samsung doesn't enjoy an ecosystem like Apple does, and it mainly earns money through selling hardware. On the other hand, as long as the company can turn products into cash flow, it will be a good investment. Keep in mind though that I don't currently recommend buying Samsung shares because the ADR versions of these shares have extremely low volume, high volatility and low liquidity. This is why I hope that Samsung's management will make the right decision and list the company's shares in an American exchange. If it does that, the company will be one of the strongest buys that ever existed.
As for companies that are already listed in American exchanges, Apple is still the king of kings.