SK Hynix's Stock Trades at Around 5 Times Next Year's Earnings Even After Revenue Grew 257%. Here's What a Multiple That Low Usually Signals About a Cyclical Business.
The commoditized nature of memory chips has traditionally made companies vulnerable to industry cycles.
Overview
One of the more confounding aspects of investing in SK Hynix (NASDAQ: SKHY) stock is its valuation. As of the time of this writing, the stock trades at just 6 times forward earnings!
Assuming a one-time benefit is not temporarily skewing the earnings multiple lower, a forward earnings multiple that low often signals extreme negative sentiment toward the stock. That is either because of consistently poor growth or a sign that the company faces serious troubles.
Details
None of these situations describes SK Hynix today. Instead, the company benefits from unprecedented demand for its high-bandwidth (HBM) memory chips, which has taken its revenue growth rate into the stratosphere.
Source
Originally published at www.fool.com.