The Samsung brand has made a name across the global electronics industry and the more specific consumer electronics market. The diverse business segments and product offerings under Samsung Electronics range from home appliances to smart devices. The company is also involved in manufacturing hardware components like semiconductors and in developing a range of software or applications. It is also one of the biggest competitors of Apple and Google. The company has also been regarded as one of the largest technology companies in the world. Nevertheless, in considering its impressive profile, investing in Samsung Electronics stock makes sense. This does not mean that doing so has its fair share of drawbacks and risks.
Pros: Advantages of Samsung Electronics Stock
Samsung Electronics is at the pinnacle of the Samsung Group. It is the main revenue driver of the multinational conglomerate. It is also regarded as one of the most successful exports of South Korea due to its established global presence. The considerable growth in the value of its stock over the last decade is a testament to its increasing appeal to global investors. Below are the specific advantages of investing in Samsung Electronics stock:
• Strong Brand Recognition: The brand is a household name. It is one of the most recognizable brands in the world. There are also consumers loyal to its range of product offerings. Hence, compared to other lesser-known brands and new entrants, its newer products have a higher chance of better market reception. The strong global branding also increases the entry barrier to the greater electronics market.
• Diversified Business Model: Another advantage of Samsung Electronics stock is that investing in this company also means investing in various business segments. These include hardware components and semiconductor manufacturing, end-use consumer electronics like computers and mobile devices, home appliances, medical devices, battery technologies, and telecommunications, among others.
• Proven Innovation Direction: The company has also been credited for introducing and contributing to some of the most important innovations and developments in both electronics and consumer electronics. These include the commercialization of OLED displays, adoption of 5G network technology, and promotion of advanced memory chips, It allocates a significant budget to research and development.
• Specific Segment Leadership: Investing in Samsung Electronics also means betting on its established presence in several market segments. It is one of the largest smartphone manufacturers in the world. The company also has a strong position in the TV segment. It has also supplied hardware components to other tech companies like Apple and Microsoft and to automakers like Volkswagen and BMW.
• Historical Stock Growth: The stock of the company traded for around $10.00 in 2010. The price peaked at around $64.10 in January 2021. This is about 145 percent growth. Of course, while historical performance does not guarantee future performance, it is still worth noting that the company continues to evolve alongside the greater tech industry through active product testing to find new market opportunities.
• Affordable Large Cap Stock: Another advantage of Samsung Electronics stock is that it is more affordable compared to companies like Alphabet, Apple, and Microsoft. It remains one of the most affordable large-cap stocks in the world and has some of the notable advantages of both value stocks and growth stocks. It is traded on the Korea Exchange, London Stock Exchange, and Luxembourg Stock Exchange.
Cons: Disadvantages of Samsung Electronics Stock
It is worth mentioning that some consider the diversified business model of Samsung Electronics as a disadvantage. Take note that Apple remains its biggest competitor in the smartphone market and its market share is also threatened by companies like Xiaomi. It also competes with other companies with established leadership in their respective segments. The following are the specific disadvantages of investing in Samsung Electronics stock:
• Smartphone Sales Reliance: The smartphone segment accounts for a large portion of the revenues and profits of the company. This fact makes it vulnerable to the increasing competition in the smartphone market, possibilities of market saturation, and eventual market disruption. The arrival of companies from China like Xiaomi has taken a sizeable chunk of its market share since 2015 and further in 2020.
• Limited Product Ecosystem: It is true that the company has legions of loyal end-use consumers but it still lags when compared to competitors like Apple. Even Xiaomi is banking on its product ecosystem. Samsung Electronics has struggled to build a solid product ecosystem that would offer a comprehensive and singular user experience that can result in lock-in consumers and repeat sales.
• Profit Margin Pressure: Another disadvantage of Samsung Electronics stock is that its dependence on smartphone sales and the price wars in the smartphone market have placed significant pressure on its profit margins. The company is forced to constantly innovate, offer competitive pricing, and introduce new value propositions to keep itself ahead and prevent existing customers from switching to other brands.
• Cyclical Business Segments: The business segments involved in the production and marketing of semiconductors, network components, and display panels are exposed to cyclical risks. This comes from the fact that these segments are dependent on the seasonal production schedules of their business customers. These segments are also vulnerable to supply chain disruptions and global economic downturns.
• Political and Publicity Risks: Samsung Electronics is exposed to geopolitical risks from the ongoing conflict between South Korea with North Korea. This remains manageable. The biggest political risks center on legal and regulation. The company has been embroiled in patent disputes and allegations of problematic corporate governance. It has also figured into high-profile public relations nightmares in the past.
• Unlisted in the United States: The company is not directly traded in stock exchanges in the United States. It is primarily listed in the Korea Exchange it trades global depository receipts in London and Luxembourg. The company can still be accessed in U.S. stock exchanges through several global exchange-traded funds or in U.S. markets for pooled funds like mutual funds and unit investment trusts.
