Fair Warning
Referees get a bad rap. On their best day, they go unnoticed. But blow a call and it could mean the wrong side wins and an entire fan base loathes you. A lot of referee work goes before the whistle. It’s mundane stuff -- giving warnings for wayward elbows, telling players you see they’re grabbing jerseys.
Exchanges play this role in public markets. They write rules and procedures to keep participants in line and make sure things are transparent.
Foul
Korea Exchange fired off a couple warnings to SK Hynix, a computer memory maker. Lamplighter's talked about SK Hynix before. The company didn't do anything wrong. Korea Exchange worries about investors -- mostly retail ones -- borrowing too much money to invest in the company. Margin-heavy shares – shares bought with borrowed money -- are prone to wilder swings and deep crashes.
These investors might think SK Hynix can't do anything wrong. Its share price shot 230% higher this year. That'll raise a few eyebrows. It's one of the most important companies in Korea. The exchange doesn't want to fumble this.
The company's operations don't look too shabby though. Its market cap is $170B. Its earnings grew six-fold from 2023 to 2024 and another 40% so far in 2025. Before the recent run-up, SK's shares stayed pretty flat. Some of the pop is shares catching up.
Looking ahead, SK's 2026 book of business is mostly filled. Its customers are already scrambling to find enough memory. This nips the near-term risk that demand dries up.
So, SK's business is booming. Its share price is soaring. Its exchange is only worried about the layers of debt hiding in its investor base.
Is there anything to do about that?
Game on
The warning might be one reason the company's eyeing a listing in the US. US rules may not offer much more leeway, but pockets in the US go deeper. Korean companies tally a market cap of about $2 trillion compared to $70 trillion in US companies.
The investor mix matters too. There's more institutional money to fill out the roster rather than relying on sometimes skittish retail investors. Retail investors make up 43% of SK's shareholder base. Retail holds an average of 19% of companies in the S&P 500.
SK Hynix might also be motivated to keep up with the Joneses, in this case, its closest peer, Boise-based Micron. Investors in the US pay three times as much for its earnings compared to SK Hynix. This despite SK Hynix having a better product offering and stronger operating reputation. Even with SK's share price run, it looks relatively cheap.
Extra time
SK faces a shareholder challenge at home. Its investors have borrowed too much. It also has a disappointing valuation. Its shares are inexpensive on an absolute basis and 70% less per dollar of earnings compared to Micron.
Listing in the US could bring more US investors to the game. It could attract more institutional backing. And, most importantly, the move could provide more support for a share price that better reflects the company’s excellent operating record.
Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.