SK Hynix trades at 4x P/E with 107% forecast earnings growth

SK Hynix (NASDAQ:SKHY) trades at a 4x forward P/E and a 0.05 PEG ratio, making it the cheapest stock among roughly 14 trillion-dollar companies worldwide.

"AI hasn't eliminated memory's boom-bust nature, but it has extended this particular upswing considerably," analysts at Bank of America said in an August research note.

SK Hynix posted a 76 percent operating margin last quarter with revenue up 41 percent year over year. Wall Street forecasts EPS will grow at a compounded 107 percent rate over the next five years. Its forward P/E of 4x compares with 6.5x for Micron Technology (NASDAQ:MU) and roughly 26x for Taiwan Semiconductor Manufacturing (NYSE:TSM). Its PEG ratio of 0.05 typically suggests the market hasn't caught up to earnings growth already visible in the numbers.

The stock has recovered to around $162 from a post-IPO low below $125, still below its $195 intraday peak. A $28.6 billion buyback-and-cancellation program destroys about 3.3 percent of shares outstanding, roughly offsetting the entire U.S. share count issued in July.

SK Hynix went public on Nasdaq on July 10, priced at $149 and opening at $170. Its ADRs climbed as high as roughly $195 intraday in the days following the debut, then reversed hard, falling below $125 as questions resurfaced about whether the AI memory boom was simply the latest chapter in a notoriously cyclical business. Memory chips have crashed before — badly, and often.

The round trip has forced a real debate rather than a hype cycle. SK Hynix crossed the $1 trillion market cap threshold in May on the Korean exchange, joining Samsung as just the second Korean company to do so. It's now one of roughly 14 stocks worldwide in that club, with Berkshire Hathaway (NYSE:BRK-A), JPMorgan Chase (NYSE:JPM), and Walmart (NYSE:WMT) knocking on the door.

At $162, SK Hynix's stock is cheaper than every other trillion-dollar stock except SpaceX at $138. Its price-to-book ratio of 4.6x compares with 10.5x for Micron and 9.5x for TSM. Price-to-free-cash-flow sits at 11.9x versus 40.4x for Micron and 53.5x for TSM.

SK Hynix's October lockup expiration is different in kind, not just degree. Its $26.5 billion U.S. listing consisted entirely of newly issued shares — 17.79 million common shares packaged into 177.9 million ADRs — not stock sold by existing insiders. That's just 2.5 percent of total shares outstanding, versus roughly 730 million shares trading in Seoul. No employee or SK Square stake was sold in this offering, so there's no wall of insider selling waiting to hit the tape.

The buyback-and-cancellation program announced by the company destroys about 3.3 percent of shares outstanding, roughly offsetting the entire U.S. share count issued in July.

For investors comfortable with memory's cyclical history, SK Hynix looks like a long-term holding worth building a position in now. The next event to watch is the October lockup expiration, which should test whether the stock's valuation holds without the overhang of insider selling.

This article is for informational purposes only and does not constitute investment advice.