Subaru (TSE:7270): Revisiting Valuation After Profit Revision and Share Buyback Update

Subaru (TSE:7270) recently revised its reported profit numbers for the first quarter, and also provided an update on its share buyback initiative. Both announcements shed light on how the company is managing transparency and shareholder returns.

See our latest analysis for Subaru.

Subaru’s recent announcements land against a backdrop of strong share price momentum, with a 6% gain over the past month and a 20% year-to-date share price return. Investors eyeing the longer picture will note the 42.8% total shareholder return over the last year, confirming robust value creation even as news of revised profit figures and ongoing buybacks add nuance to the outlook.

If Subaru’s moves have you curious about the broader auto sector, it’s a great moment to explore what’s happening with the industry’s other major players, such as See the full list for free..

With shares near all-time highs, a recent profit revision, and ongoing buybacks, the real question is whether Subaru is undervalued at current levels or if the market has already priced in its growth story.

Price-to-Earnings of 7.8x: Is it justified?

Subaru’s current price-to-earnings (P/E) ratio of 7.8x suggests the market is valuing its earnings well below those of both peers and the broader market, given the last close price of ¥3,309.

The price-to-earnings ratio captures how much investors are willing to pay for each unit of the company's net income. In the auto industry, this metric is particularly important as it helps compare companies with varying profit margins and cyclical performance. It also gives perspective on future growth expectations and profitability.

With Subaru’s P/E ratio sitting well below the Japan market average of 14.3x and the Asian auto industry average of 21.1x, investors may be underestimating the company’s profit potential based on current sentiment or cautious forecasts. The P/E ratio is also below the estimated “fair” price-to-earnings ratio of 12.3x. This may indicate the market is missing something in its outlook and that there could be room for an upward re-rating if sentiment changes.

Explore the SWS fair ratio for Subaru

Result: Price-to-Earnings of 7.8x (UNDERVALUED)

However, annual net income has declined, and Subaru currently trades below analyst price targets. This raises questions about near-term earnings momentum and sentiment shifts.

Find out about the key risks to this Subaru narrative.

Another View: What Does the DCF Model Say?

Looking at Subaru through the lens of our DCF model offers a very different perspective. The SWS DCF model estimates fair value at ¥2,160.48, which is well below the current share price of ¥3,309. In practical terms, the market may be pricing in more optimism than fundamental cash flows support. Should investors be wary, or is the market seeing something the models do not?

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 870 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 have a different perspective or want to dig into the numbers yourself, you can craft your own view in just a few minutes. Do it your way.

A great starting point for your Subaru research is our analysis highlighting 2 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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