DENSO (TSE:6902): Assessing Valuation After Recent Share Price Uptick

DENSO (TSE:6902) has caught some attention after a recent share price move, trading up by almost 1% in its latest session. For investors keeping an eye on automotive suppliers, this small uptick may prompt questions about longer-term trends.

See our latest analysis for DENSO.

Looking beyond today’s modest climb, DENSO’s 1-year total shareholder return stands at -8.95 percent. This caps off a stretch marked by short-term volatility and a pullback from earlier highs. Recent declines suggest momentum remains tepid for now, even as the industry keeps evolving.

If you’re keeping tabs on what other auto suppliers are doing, now is the perfect chance to check out the landscape with our See the full list for free.

With shares trading below analysts’ price targets and recent results hinting at improvement, is DENSO an overlooked value? Alternatively, are investors already factoring in any rebound and future growth into today’s price?

Price-to-Earnings of 15.1x: Is it justified?

DENSO is trading at a price-to-earnings (P/E) ratio of 15.1x, placing it right in line with peer averages but noticeably above the broader Japanese auto components industry. The last close was ¥2,019, underscoring the company’s premium relative to sector norms.

The price-to-earnings ratio compares the company’s share price to its earnings per share, serving as a quick benchmark for how the market values its current profits. For automotive suppliers, where margins and growth can swing with consumer and factory demand, the P/E is a widely watched measure.

With DENSO’s P/E almost matching its similarly sized competitors but well above the industry’s 10.1x average, investors may be paying up for DENSO’s history of profit expansion and stable management. The fair P/E ratio, calculated using regression analysis of sector peers, suggests a market level of 17.1x. This hints there could be room for further price improvement if fundamentals hold course.

Explore the SWS fair ratio for DENSO

Result: Price-to-Earnings of 15.1x (ABOUT RIGHT)

However, the slowing revenue growth and recent share price declines could signal that market confidence in DENSO’s recovery is not yet fully restored.

Find out about the key risks to this DENSO narrative.

Another View: What Does Our DCF Model Say?

While the price-to-earnings ratio suggests DENSO is fairly valued relative to peers and below the fair ratio, our DCF model presents a different perspective. The SWS DCF model estimates that DENSO is trading about 29.1% below its calculated fair value, which implies notable upside if cash flow forecasts prove accurate. Could the market be overlooking this potential?

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 DENSO 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 919 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 DENSO Narrative

If you see things differently or prefer to reach your own conclusions, you can shape your own narrative in just a few minutes. Do it your way.

A great starting point for your DENSO research is our analysis highlighting 4 key rewards and 1 important warning sign 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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