Is SMIC’s Share Price Surge Justified After Rallying Over 200% in 2024?

Thinking about the next move with Semiconductor Manufacturing International stock? You are not alone. This company has been on an absolute tear, and anyone glancing at the charts lately has probably done a double take. Just this past week, shares popped a remarkable 24.6%, and if you widen the lens, the one-month gain comes in at 51.5%. That is on top of a stunning 213.4% rally so far this year and a 232.4% surge over the past twelve months. Even if you look back three or five years, the stock's rise—428.5% and 391.9%, respectively—would have more than rewarded patient investors.

Surges like these rarely happen in isolation. Investors are responding to growing optimism that Semiconductor Manufacturing International can benefit from ongoing shifts in global supply chains and new strategic partnerships. There is a sense that the company is positioned to capture a bigger slice of the market at a time when the world cares more about domestic chip production and secure supply. All that excitement, though, brings investors to a familiar crossroads: is the current price actually justified, or has sentiment leapt ahead of fundamentals?

On the face of it, the company’s valuation score sits at just 1 out of 6 possible checks for being undervalued. That score suggests a cautious approach, at least when it comes to classic valuation techniques. But numbers like these deserve a closer look. Next, we will dive into some of the most common ways investors gauge whether a stock is a bargain or overpriced. Stick around, because after we cover the usual suspects, we will also explore a perspective that can reveal an even deeper side of valuation.

Semiconductor Manufacturing International scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Semiconductor Manufacturing International Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates the intrinsic value of a stock by forecasting future cash flows that a company can generate, then discounting those cash flows back to their value today. This approach is widely used because it focuses on a company’s potential to generate real cash for its owners.

For Semiconductor Manufacturing International, the most recent free cash flow reported was a negative $5.48 Billion, reflecting recent operational and investment costs. Analyst projections suggest a significant recovery, with free cash flow expected to grow year after year, turning positive in the coming years, and reaching a projected $7.07 Billion by 2035 (all figures in $ and based on third-party analyst estimates for the near term, with further years extrapolated by Simply Wall St).

These projected figures are submitted to the DCF model, which calculates an estimated intrinsic value per share of $49.05. However, with the stock trading at a significant premium, this model currently implies that the stock is about 85.3% overvalued compared to its fair value, based on discounted cash flows.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Semiconductor Manufacturing International.

Our Discounted Cash Flow (DCF) analysis suggests Semiconductor Manufacturing International may be overvalued by 85.3%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Semiconductor Manufacturing International Price vs Sales

The Price-to-Sales (P/S) ratio is often a preferred valuation tool for companies like Semiconductor Manufacturing International, especially when profitability is volatile but revenue growth remains robust. The P/S metric helps investors assess how much they are paying for each dollar of the company’s sales, offering a more stable benchmark than price-to-earnings during periods when earnings may swing dramatically.

Generally, higher growth companies and firms with lower risk profiles can justify a premium P/S multiple. Those with slower growth or more uncertainty tend to trade at discounts. It is important to consider expectations for future expansion, profit margins, and prevailing industry risks when gauging whether a P/S ratio is fair or stretched.

At present, the company trades at a P/S ratio of 10.58x. That stands well above the semiconductor industry average of 2.37x and higher than the average among its peers at 11.37x. To offer deeper insight, Simply Wall St’s proprietary Fair Ratio comes into play. This metric weighs company-specific factors such as forecasted growth, profit margins, risk levels, market capitalization, and the broader semiconductor industry context, delivering a more customized assessment than a simple peer or industry comparison.

For Semiconductor Manufacturing International, the Fair Ratio is calculated to be 7.42x, noticeably below the current 10.58x trading multiple. Since this gap exceeds the 0.10 threshold, it signals the stock is trading at a premium relative to what would be justified by its fundamentals and growth prospects.

Result: OVERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Semiconductor Manufacturing International Narrative

Earlier we mentioned there is an even better way to understand valuation. Let us introduce you to Narratives. A Narrative is a clear, concise way for you to connect your personal outlook on Semiconductor Manufacturing International, including your assumptions about its growth, margins, and market position, with a financial forecast and the fair value that results from those beliefs.

Narratives are available for every company on the Simply Wall St Community page, allowing millions of investors to instantly see and compare different perspectives, whether you are bullish, bearish, or somewhere in between. These Narratives take your outlook, convert it into projected numbers, and work out a fair value. This can help you decide if now is the right time to buy or sell by comparing that fair value to today’s price.

What makes Narratives especially powerful is that they update automatically when new news or earnings are reported, keeping your view and conviction up to date. For instance, some investors see Semiconductor Manufacturing International thriving on domestic expansion, pricing in a future value around HK$68, while others are far more cautious, citing margin risks and arriving closer to HK$20. Narratives empower you to take your view, quantify it, and support your decisions with data and confidence.

Do you think there's more to the story for Semiconductor Manufacturing International? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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