Harvey Norman (ASX:HVN): Assessing Valuation After Announces 10% Share Buyback Program

Harvey Norman Holdings (ASX:HVN) has announced a new share repurchase program, authorizing the buyback of up to 10% of its issued capital over the next year. This move often signals confidence from management in the company’s outlook.

See our latest analysis for Harvey Norman Holdings.

Harvey Norman Holdings’ share price has surged more than 56% year-to-date, with momentum especially strong over the past three months. This positive trend, echoed by a robust one-year total shareholder return of nearly 70%, suggests growing investor confidence following the newly announced buyback and continued business growth.

If the recent buyback news has you interested in other opportunities, now is a great time to broaden your horizon and discover fast growing stocks with high insider ownership

With its share price rally and management’s share buyback, many investors are now wondering if Harvey Norman Holdings remains undervalued or if the market is already factoring in all the future growth. Could this be a genuine buying opportunity?

Price-to-Earnings of 17.7x: Is it justified?

Harvey Norman Holdings’ current Price-to-Earnings (P/E) ratio of 17.7x stands out as relatively low when compared to both the sector and peers, especially in light of the company's recent share price surge and profitability growth.

The P/E ratio measures how much investors are currently paying for each dollar of earnings. For established retailers like Harvey Norman Holdings, this ratio offers quick insight into how the market values its underlying profits and growth potential. A lower P/E may indicate undervaluation, particularly if it is below sector averages or the company’s own fair value estimate.

Harvey Norman Holdings is trading well below its estimated fair P/E ratio (23.1x) and well under the peer average of 28.2x. This suggests the market is offering a price for its earnings that could look especially attractive as profit momentum continues. Compared to the global Multiline Retail industry P/E of 20.4x, Harvey Norman Holdings is also favorably positioned. This creates a valuation gap that could close if positive operating trends are sustained. These figures point to room for the market to potentially rerate the stock closer to this fair multiple.

Explore the SWS fair ratio for Harvey Norman Holdings

Result: Price-to-Earnings of 17.7x (UNDERVALUED)

However, risks such as slower sales growth or missing analyst price targets could dampen sentiment and limit further share price upside in the near term.

Find out about the key risks to this Harvey Norman Holdings narrative.

Another View: What Does Our DCF Model Say?

While valuation based on earnings multiples points to Harvey Norman Holdings being undervalued, our SWS DCF model offers another perspective. According to this model, shares are trading at nearly 12% below their estimated fair value. This gap suggests there may still be untapped upside. However, the question remains whether the market will agree or continue to discount the stock.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Harvey Norman Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 881 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Harvey Norman Holdings Narrative

If you feel a different perspective might better capture Harvey Norman Holdings’ potential, you can dive into the data and shape your own view in just minutes with the option to Do it your way.

A great starting point for your Harvey Norman Holdings research is our analysis highlighting 4 key rewards and 2 important warning signs that could impact your investment decision.

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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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