Assessing SMFG’s Valuation After Strong Share Price Gains and Latest Dividend Increase

If you have been keeping an eye on Sumitomo Mitsui Financial Group, you have probably noticed some impressive moves in the stock price recently. After a stellar 35.2% jump over the past year and an eye-opening 399.7% gain over five years, it is no surprise that more investors are wondering if now is the right time to get involved, or whether it is time to take some profits. Despite a slight pullback of -4.6% in the past week and a mild -0.6% dip over thirty days, the year-to-date return stands strong at 7.0%. These numbers hint at both the growth potential in this sector and a shift in how markets are assessing risk around global financial stocks, possibly influenced by broader economic optimism and changes in Japan's banking environment.

Looking at conventional valuation metrics, Sumitomo Mitsui Financial Group is seen as undervalued in 2 out of 6 standard checks, giving it a valuation score of 2. But what do these valuation scores really tell us, and are they enough on their own to make a smart investment call? Coming up, we will break down these methods in plain language, and at the end, I will share a perspective that goes beyond the numbers for those who want to truly understand value in today’s market.

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

Approach 1: Sumitomo Mitsui Financial Group Excess Returns Analysis

The Excess Returns model is a way to measure how well a company grows shareholder value by earning a return on its invested capital that is above its cost of capital. Essentially, it looks at the ability of Sumitomo Mitsui Financial Group to generate profit in excess of what investors could expect from similar-risk alternatives.

For Sumitomo Mitsui Financial Group, the model estimates a Book Value of ¥3,753.06 per share and a Stable EPS of ¥422.15 per share, based on weighted future Return on Equity estimates from 10 analysts. The Cost of Equity stands at ¥269.83 per share, resulting in an Excess Return of ¥152.32 per share. The average Return on Equity is projected at a healthy 9.92%, with analysts also anticipating the Stable Book Value to reach ¥4,253.95 per share in the future.

What does this all mean for investors? According to this method, the stock’s intrinsic value comes in at a notable discount. Sumitomo Mitsui Financial Group appears to be 41.1% undervalued compared to its estimated fair price based on excess returns. In practical terms, this suggests there may still be significant value left on the table for patient shareholders.

Result: UNDERVALUED

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

Our Excess Returns analysis suggests Sumitomo Mitsui Financial Group is undervalued by 41.1%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Sumitomo Mitsui Financial Group Price vs Earnings

The Price-to-Earnings (PE) ratio is a well-established and intuitive way to value companies that are profitable, like Sumitomo Mitsui Financial Group. Since earnings are a direct outcome of how efficiently a company turns revenue into profit, the PE ratio lets investors see how much they are paying for each unit of those current earnings.

It is important to remember that not all PE ratios are created equal, as they reflect more than just today’s profits. Expectations for future growth and perceived riskiness play a big role in determining what a “normal” or “fair” PE should be. Fast-growing or lower-risk companies typically have higher PE ratios, as investors are willing to pay more for the promise of future earnings growth and steady returns.

Looking at the current numbers, Sumitomo Mitsui Financial Group trades at a PE multiple of 32.19x. That is notably higher than the Banks industry average of 11.19x, and well above the peer average of 14.91x. However, rather than just looking at broad industry or peer averages, Simply Wall St computes a tailor-made “Fair Ratio.” This Fair Ratio, at 19.02x in this case, considers not just the industry and basic comparisons, but also factors such as the company’s projected earnings growth, profit margins, market cap, and risk profile.

By focusing on the Fair Ratio, investors get a more nuanced sense of valuation that adjusts for specifics unique to the business, rather than relying solely on raw comparisons. Here, with the current PE of 32.19x sitting well above the Fair Ratio of 19.02x, the stock appears to be trading at a premium on an earnings basis.

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 Sumitomo Mitsui Financial Group Narrative

Earlier, we noted there is a smarter way to go beyond the numbers, so let’s introduce Narratives, a powerful, story-driven approach to understanding value. A Narrative is simply your perspective on a company’s journey. You connect what you believe about its future growth, profits, and risks to a personal financial forecast, and then to your own fair value. Narratives help translate market events, forecasts, and your own insights into actionable decisions by letting you compare your Fair Value with the market Price, making it easier to spot buying or selling opportunities.

This tool, available on Simply Wall St’s Community page and already used by millions of investors, keeps your Narrative updated whenever new information such as earnings or news is released. For instance, one investor might see Sumitomo Mitsui Financial Group as an undervalued opportunity based on optimistic growth forecasts, while another, more cautious user might assign a much lower fair value due to concerns about future earnings. Narratives empower you to align investment moves with your own story and goals, rather than just industry benchmarks.

Do you think there's more to the story for Sumitomo Mitsui Financial Group? 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.

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