Has JTEKT’s 46% Surge Fully Priced in Recent Partnerships and Growth?

• Wondering if JTEKT’s stock is a hidden gem or already reflecting all its value? You’re not alone. There is a lot to unpack here for investors curious about real opportunities.
• Shares have climbed an impressive 68.7% over the past year and are up 46.0% year-to-date, signaling that the market sees something promising in JTEKT’s future.
• Momentum has been fueled by recent headlines around sector-wide innovation. JTEKT unveiled new partnerships and product launches that caught the attention of both investors and the industry. These developments have added a new layer of optimism to an already bullish trend.
• However, when we take a closer look using our valuation checks, JTEKT only scores 2 out of 6 for undervaluation. This suggests the stock may not be as much of a bargain as some headline numbers imply. Let’s dig into what those numbers really mean, and stay tuned for a smarter way to think about a company’s value at the end of this article.

JTEKT scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: JTEKT Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's value by projecting its future cash flows and bringing them back to today's value using a discount rate. This approach helps investors gauge what a business should be worth based on its expected ability to generate cash over time.

For JTEKT, the most recent reported Free Cash Flow is approximately ¥30.2 billion. Analyst consensus only provides FCF forecasts up to 2028, at which point JTEKT is projected to generate about ¥74.0 billion in Free Cash Flow. Beyond 2028, cash flows are extrapolated based on reasonable growth assumptions by Simply Wall St and reach just over ¥105.5 billion in 2035. All cash flow projections are expressed in yen, the currency the company reports in.

Using the two-stage Free Cash Flow to Equity model, the estimated intrinsic value for JTEKT is ¥4,118 per share. This value represents a 58.8% discount relative to JTEKT’s current trading price, indicating the stock is significantly undervalued according to this method.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests JTEKT is undervalued by 58.8%. Track this in your watchlist or portfolio, or discover 917 more undervalued stocks based on cash flows.

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

Approach 2: JTEKT Price vs Earnings

For profitable companies like JTEKT, the Price-to-Earnings (PE) ratio is a widely used metric for valuation because it connects a company’s market value to its actual earnings. It provides investors with a simple way to understand how much they are paying for each yen of earnings, which is especially meaningful when underlying profits are stable or growing.

What is considered a "normal" or "fair" PE ratio can vary greatly, depending on factors such as a company's expected earnings growth, risk profile, and the stability of its profit margins. Higher growth or more resilient businesses often command higher PE ratios, while added risks tend to pull them back down.

JTEKT’s current PE stands at 27.5x, indicating investors are paying around twenty-seven times the company’s last year’s earnings per share. This is noticeably higher than the auto components industry average of 9.9x and above the peer average of 13.3x. At first glance, this might suggest the stock is rich compared to its sector.

However, Simply Wall St's proprietary “Fair Ratio” aims to offer a more nuanced benchmark. This metric goes beyond just industry and peer averages by blending in JTEKT's unique growth outlook, risks, profit margins, market cap, and industry context. In JTEKT's case, the fair PE ratio is estimated at 27.0x, very close to the actual PE.

Since JTEKT’s PE ratio is within a fraction of its Fair Ratio, this signals the current share price reflects a reasonable valuation based on the company’s fundamentals and risk profile.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1439 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your JTEKT Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your story about a company, your perspective on where it’s headed, which you express by setting your own projections for future revenue, profit margins, and a personal estimate of fair value.

Narratives make investing personal and practical, letting you tie together the company’s story with a clear financial forecast, helping you decide what you think JTEKT is truly worth. On Simply Wall St’s platform, Narratives are easy for anyone to create or refine from within the Community page, and are already being used by millions of investors worldwide.

With Narratives, you can quickly compare your Fair Value for JTEKT against the live market price. This allows you to make a more informed decision about when to buy, sell, or hold, all based on assumptions you control. When news or results change, your Narrative can update automatically so you are never caught behind the market.

For example, one investor may see JTEKT’s fair value near ¥5,500 per share based on optimistic sales forecasts, while another’s conservative scenario puts it closer to ¥3,500. Narratives give you the flexibility to own your investment story from start to finish.

Do you think there's more to the story for JTEKT? Head over to our Community to see what others are saying!

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com