As volatility in Korea's stock market has increased recently, more investors are looking at the gap between brokerages' target prices and actual share prices, the so-called "disparity rate." A large disparity rate means the current share price is lower than the target price suggested by brokerages, and some investors interpret this as an "undervaluation signal."
However, investors should be cautious, as jumping in based only on the disparity rate can lead to losses. The view of securities company analysts and the market's assessment, the "share price," do not always match.
According to FnGuide on the 21st, as of on the 18th, among 162 KOSPI 200 stocks for which three or more brokerages presented a consensus (average estimate), Kakao Pay had the highest disparity rate at 81.9%. Krafton Inc. (68.7%), Hankuk Carbon (65.5%), and Dongwon Industries (61.8%) followed.
The reason the disparity rate is high for these stocks is that the views of brokerages and the market diverge significantly.
In the securities industry, the view on Fintech company Kakao Pay is that user engagement based on KakaoTalk will gradually rise. On that basis, they say earnings growth is possible. However, Kakao Pay's share price has stayed around the 50,000-won level since late Aug.
The reason the share price is moving sideways is cited as weak results in Kakao Pay's loan service institutional sector. Jeong Ho-yoon, a researcher at Korea Investment & Securities, said, "Due to the government's household loan regulations announced in Jun., the loan services, which have a high share of revenue, have not been able to grow," and "Revenue growth in the core payment service also remains in the single digits."
For domestic game maker Krafton Inc., operating profit came to 768.0 billion won in 2023 and 1.1825 trillion won last year, continuing to improve. This year's operating profit is expected to rise 11% on-year to 1.3118 trillion won.
However, the lack of additional intellectual property (IP) beyond its flagship Battlegrounds IP and a slump in the game industry are weighing on the share price. Krafton Inc.'s share price has been on a steady decline since hitting a year-high of 386,000 won on May 21. As of on the 20th, it had fallen 34.5% from the peak.
Lee Seung-hun, a researcher at IBK Securities, said, "Krafton Inc.'s new-release schedule has not been finalized, making it hard to project growth potential," and "Compared to the market's strong interest in artificial intelligence (AI) recently, game companies have been relatively overlooked."
Stocks with high disparity rates can also be seen as undervalued shares that could rise in the future. For example, Samsung Electronics and SK hynix at one point in 2022, when the semiconductor market was in a downturn, had disparity rates exceeding 50% and 60%, respectively. At the time, Samsung Electronics and SK hynix shares were in the 60,000-won and 100,000-won ranges, far below the average target prices of brokerages (around 90,000 won and 150,000 won).
But as the slump in the semiconductor cycle began to ease, share prices surged. With rising expectations for artificial intelligence (AI) semiconductors, since the start of this year (Jan. 2–Nov. 20) Samsung Electronics and SK hynix shares have jumped 88% and 234%, respectively. This month, they each broke through 110,000 won and 600,000 won, setting new highs. The disparity rates of Samsung Electronics and SK hynix have shrunk significantly to 38.7% and 28.1%, respectively.
However, experts advise that it is risky to conclude that a stock is undervalued solely because the disparity rate is large. Hwang Se-woon, a senior research fellow at the Korea Capital Market Institute, said, "Treat the disparity rate figure as the degree of each brokerage's opinion, and investors should decide whether to invest based on the process and supporting materials behind that figure."