Subaru (TSE:7270): Assessing Valuation Following Dividend Hike and Updated Production Numbers

Subaru (TSE:7270) is on investors' radar after announcing its second-quarter dividend will climb to JPY 57.00 per share, up from JPY 48.00 a year ago. The company also updated its first-half production numbers, reporting 453,000 units built compared to 475,000 last year.

See our latest analysis for Subaru.

Subaru's latest dividend bump and production update come after a year marked by steady upward momentum. The stock’s share price has climbed 24.2% year-to-date, but what truly stands out for long-term investors is its total shareholder return of 45.5% over the past 12 months. This signals that market optimism around the brand is growing even as production eases off recent highs.

If Subaru’s recent performance has sparked your curiosity, now’s a perfect time to see what’s happening across the sector and discover See the full list for free.

But with the stock riding high and fundamentals improving at a modest pace, investors have to ask: Is Subaru undervalued at current levels, or are markets already pricing in the next wave of growth?

Price-to-Earnings of 9.3x: Is it justified?

Subaru’s shares are trading at a price-to-earnings (P/E) ratio of 9.3x, below both the Japanese market average and its industry peers, signaling the market may be undervaluing its current earnings profile.

The P/E ratio reflects how much investors are willing to pay per yen of earnings, offering a snapshot of market confidence in future profitability. For automakers like Subaru, investors often look to the P/E to judge whether the stock is pricing in enough growth or caution.

With Subaru’s P/E standing well under the Japanese auto sector average of 18.1x and even below the broader market’s 13.9x, it looks attractively priced on this metric. Notably, the fair P/E ratio is estimated at 14.1x, which suggests there could be potential for the share price to re-rate upwards if fundamentals support it.

Explore the SWS fair ratio for Subaru

Result: Price-to-Earnings of 9.3x (UNDERVALUED)

However, slowing production numbers and a share price now above analyst targets could limit further upside if Subaru's earnings momentum slows.

Find out about the key risks to this Subaru narrative.

Another View: What Does the SWS DCF Model Say?

While Subaru’s low P/E ratio suggests a possible bargain, our DCF model takes a longer, cash flow-based approach and presents a different picture. It estimates Subaru’s fair value at ¥2,341.56 per share, meaning the current price may actually be overvalued by a significant margin. Could this caution investors against getting too swept up in recent momentum?

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 Subaru 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 923 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 Subaru Narrative

If you see the numbers differently or want to dig deeper into Subaru’s outlook, you can craft your own take in just a few minutes with Do it your way.

A great starting point for your Subaru research is our analysis highlighting 3 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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