Low P/E, Below Book, Dividend-Paying: Just Broke Above Downtrend

It’s a value stock that just broke above a long-term downtrend, not a combination of factors that shows up every day. The problem is the FDIC’s concern about anti-money-laundering programs of this NYSE-traded South Korean bank. With a value stock, there’s usually an issue but is this an issue too serious?

Here are the metrics: Shinhan Financial Group (NYSE: SHG) is trading with a price-earnings ratio of just 4.97, well below the p/e of the Standard & Poor’s 500 now sitting at 20.66. The stock trades at 48% of its book value. Earnings for 2022 increased by 9.80% and for the past 5 years by 5.00%. Shinhan pays a 3.21% dividend.

Those types of metrics fit the profile for a value stock — on the negative side, the company has long-term debt that comes to just over 2 times shareholder equity. The stock is lightly traded with an average daily volume of only 141,000 shares, making it difficult for large institutions who look for more liquidity.

With a market capitalization of $18 billion, Shinhan is relatively small as compared to publicly traded banks around the world.

It would be interesting to consider as a Benjamin Graham-style selection as long as you’re aware of the Federal Deposit Insurance Corporation’s November, 2022 settlement with the bank’s U.S. unit: Shinhan Bank America. The bank has agreed to strengthen “oversight” of its anti-money laundering arrangements, according to this Wall Street Journal article.

All of this is especially interesting given recent price action of the company. Take a look at the daily price chart for Shinhan Financial Group:

The 50-day moving average of price (the blue line) is crossing above the 200-day moving average, generally a bullish kind of look. There’s nothing magical about crossovers like this but they to tend to get the attention of traders and AI-programs that track price.

Here’s the weekly price chart for Shinhan Financial Group:

The price is now trading above the downtrend line that had connected the early March, 2021 peak with the late May, 2022 high, a bullish vibe. Note that Shinhan stock is now well above both its 50-day moving average and its 200-day moving average. The relative strength indicator (RSI, below the price chart) is about to hit “overbought” range.

Here’s Shinhan Financial Group’s monthly price chart:

The price is peaking above the long-term downtrend line connecting the early 2018 high with the mid-2021 high. It’s a clear demonstration of the power of this year’s buying of the stock. Shinhan is now back above the 50-month moving average which has been down trending for a few years.

It’s clear that the news of the settlement with FDIC about the anti-money laundering issue is being noticed by investors of the bank. There are no guarantees when it comes to stocks, but the positive look on all of the timeframes of these price charts is hard to ignore.

Not investment advice. For educational purposes only.