I’ve been watching some of the global markets, and it’s interesting to me that shares of LG Display Co., Ltd. (LPL), a South Korean company, just cannot catch a break right now. But this is actually a great business, and you may even be reading this on one of their screens.
They make screens for computers, TVs, smartphones and just about every electronic device. They’re in all of these really high-growth markets, and they’re going to benefit from the work from home trend, the smart car trend and even the ongoing smartphone trend in underdeveloped markets.
But even though this stock is performing at a very high level and has posted positive earnings surprises for three of the last four quarters, nobody seems to buy the story except for a couple of deep value investors like myself.
I look at it and see a great company in a high-growth market that has a strong market position, and I have to ask myself why the stock isn’t doing better. Well, first off, the biggest problem for LPL and every other South Korean company is that they have a crazy next-door neighbor with a huge military and a lot of animosity.
It’s no secret that North Korea would love to invade South Korea just to gain its infrastructure and commercial industries to revitalize their economy. And if it wasn’t for China keeping them in check, I think they might have done it already.
Basically, being in the same region with China and North Korea adds a lot of geopolitical risk that has kept some investors from buying shares of South Korean companies like LPL. Also, it is a fairly competitive market, with a lot of companies in the screen-making business.
Too Cheap to Ignore
But enough is enough… This stock is too cheap. This is a company has a total market cap of $5 billion, but they’re doing $23.7 billion revenue. Total profits this year are going to be about $1 billion, which means the stock is trading at just five times earnings and less than two times free cash flow. That’s simply too cheap.
This company will stay in business, it will continue to have a very large market share and there’s more than enough demand for LPL and all of its competitors to get fat and happy over the next decade. The stock also trades at just 58% of book value, which makes it one of the cheapest large companies in the world today.
LPL should continue to grow earnings at about 30% a year for the next five years, according to analyst projections. And even if they just come close to that, the stock should triple or more over the next several years.
Now, if this was a US company, I would be backing up the truck in order to buy as many shares as possible. I would be dramatically overweight the stock. However, we can’t forget about the geopolitical risks.
I do not think that North Korea will invade South Korea without China’s permission, and I don’t think China will give them that permission. But it’s worth keeping in mind that North Korea’s leader is crazy, so it could happen.
Fortunately, we don’t have to back up the truck to make a lot of money here. The company should be trading two or three times higher than it is right now, and with a bit of acceptance by the institutional community, we could see the stock four or five times higher than the current price over the next few years.
It’s a great long-term growth business, so it’s absolutely a possibility that this could be a 10-bagger over, say, the next seven to 10 years. So, even a small position in LPL can still lead to massive profits in shares of LG Display Co.
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