What You Need to Know About SHG

One of Wall Street's biggest winners of the day is Shinhan Financial, a regional banking company whose shares have climbed 5.0% to a price of $34.97 -- 15.45% above its average analyst target price of $30.29.

The average analyst rating for the stock is strong buy. SHG outperformed the S&P 500 index by 5.0% during today's afternoon session, and by 15.3% over the last year with a return of 2.7%.

Shinhan Financial Group Co., Ltd. provides financial products and services in South Korea and internationally. The company is part of the financial services sector, alongside a staggering variety of banking, mortgage, insurance,and credit service companies. If there is one common denominator among all companies in the sector, it’s that they are all dedicated to maintaining and developing new systems for the storage and transfer of value and risk.

Shinhan Financial's trailing 12 month P/E ratio is 5.0, based on its trailing EPS of $7. The company has a forward P/E ratio of 5.1 according to its forward EPS of $6.88 -- which is an estimate of what its earnings will look like in the next quarter.

The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2022, the financial services sector has an average P/E ratio of 13.34, and the average for the S&P 500 is 15.97.

The main limitation with P/E ratios is that they don't take into account the growth of earnings. This means that a company with a higher than average P/E ratio may still be undervalued if it has high projected earnings growth. Conversely, a company with a low P/E ratio may not present a good value proposition if its projected earnings are stagnant.

When we divide Shinhan Financial's P/E ratio by its projected 5 year earnings growth rate, we obtain its Price to Earnings Growth (PEG) ratio of -0.66. Since a PEG ratio of 1 or less may indicate that the company's valuation is proportionate to its growth potential, we see here that investors are undervaluing SHG's growth potential .

Shinhan Financial's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:

Date Reported Cash Flow from Operations ($ MM) Capital expenditures ($ MM) Free Cash Flow ($ MM) YoY Growth (%)
2021-12-31 11,080,115 -890,214 10,189,901 301.72
2020-12-31 -4,409,317 -642,069 -5,051,386 -176.66
2019-12-31 7,179,046 -589,316 6,589,730 n/a
  • Average free cash flow: $3,909,415,000,000.00
  • Average free cash flown growth rate: 62.5 %
  • Coefficient of variability (lower numbers indicating more stability): 203.8 %

With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in SHG have received an annualized dividend yield of 7810.2% on their capital.

Shinhan Financial is by most measures fairly valued because it has a very low P/E ratio and irregular cash flows with an upwards trend. The stock has mixed growth prospects because it has a a negative PEG ratio and consistent net margins with a positive growth rate. We hope you enjoyed this overview of SHG's fundamentals.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.