Is JTEKT Offering Opportunity After Strong 44% Rally and Recent Industry Demand Growth?

Wondering whether to hold tight to your JTEKT shares, make a move, or give this stock a pass? You are not alone. JTEKT has been on quite a ride, capturing plenty of attention on trading screens and in industry discussions. Over the last year, the stock price has surged by 44.6%, with even more dramatic gains if you zoom out to three or five years, at 69.9% and 91.9% respectively. Year-to-date, JTEKT is still up a robust 25.8%. However, recent weeks have brought a slight chill, with the price down 4.5% in the last seven days and off 0.7% over the last month. This signals a possible shift in investor sentiment or broader market currents.

These price moves do not happen in a vacuum. Recent market analysis points to rising demand for industrial technology and automation, areas where JTEKT has a strong foothold. There is also growing interest in suppliers linked to electric vehicle growth and industrial modernization, both arenas where JTEKT operates. Still, investor caution is returning after months of high optimism, leading to a modest pullback as participants reassess risk and reward in a changing landscape.

With its current value score landing at 2 out of 6, JTEKT appears undervalued in two key valuation checks but does not scream ultra-cheap. That leaves us with a lot to unpack. Next up, we will weigh JTEKT using a mix of valuation techniques trusted by pros and individual investors alike. And before we are done, I will walk you through an even more insightful way to cut through the noise on valuation, so keep reading.

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 is a classic valuation tool that estimates a company’s true worth by projecting its future cash flows and discounting them back to their value today. This approach gives investors a way to see what the business is really worth if all future earnings were received now.

For JTEKT, the latest reported Free Cash Flow stands at ¥7.7 billion. Looking ahead, analysts estimate Free Cash Flow will climb steadily, reaching over ¥73.1 billion by 2028 and surpassing ¥128.9 billion in 2035. These long-term numbers are extrapolated from initial analyst forecasts. This growth trajectory reflects confidence in JTEKT’s ability to generate increasing cash flows as its business and end markets expand.

Based on the DCF analysis, JTEKT’s estimated intrinsic value is ¥5,004 per share. This is 70.8% higher than the current share price, signaling a significant undervaluation by the market at present.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests JTEKT is undervalued by 70.8%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: JTEKT Price vs Earnings (PE Multiple)

The Price-to-Earnings (PE) ratio is a widely used valuation tool for profitable companies like JTEKT because it directly compares the company’s market value with its current earnings, giving investors a sense of how much they are paying for each yen of profit. It is especially relevant when a company has stable or growing earnings, as it provides a straightforward gauge of valuation versus profitability.

However, what counts as a “fair” PE depends on factors beyond just profit. Growth expectations and perceived risk play big roles. High-growth, lower-risk companies tend to warrant higher PE ratios, as investors are willing to pay more for future earnings and stability. Conversely, lower growth prospects or higher risks push the fair PE lower, even inside the same industry.

JTEKT’s current PE stands at 49.5x, which towers over both the industry average of 11.1x and the peer average of 13.8x. This premium might seem hefty at first glance. However, Simply Wall St’s “Fair Ratio” model, which customizes what is reasonable for JTEKT specifically by factoring in its unique growth outlook, risk profile, profitability, industry standing and market cap, lands at 35.5x. This tailored approach can be more insightful than just comparing against broad-brush benchmarks, since it adjusts for nuances that matter in real-world investing.

Comparing JTEKT’s PE of 49.5x to its fair ratio of 35.5x suggests the stock is trading at a significant premium relative to its fundamentals. Based on this, the stock appears to be overvalued using this method.

Result: OVERVALUED

PE 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 JTEKT Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives. A Narrative connects a company’s story and outlook with a financial forecast and a specific fair value, all based on your own perspective.

Instead of just relying on standard valuation formulas, Narratives let you explain why you think JTEKT will thrive or face challenges, then link that story to your estimated future revenue, profit margins, and fair value calculations, all in one place. This approach is easy and accessible, available to millions of investors on Simply Wall St’s Community page.

Narratives give you the power to decide if it is time to buy or sell by comparing your Fair Value to today’s Price. They also automatically update as soon as new information, such as breaking news or fresh earnings reports, hits the platform.

For example, when it comes to JTEKT, one investor might take a bullish Narrative with a high fair value based on strong EV expansion, while another might set a much lower value due to concerns about cyclical risks or competition. Narratives help make your investment decision smarter and more personalized.

Do you think there's more to the story for JTEKT? 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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