Should You Think About Buying Suzumo Machinery Company Limited (TYO:6405) Now?

While Suzumo Machinery Company Limited (TYO:6405) might not be the most widely known stock at the moment, it had a relatively subdued couple of weeks in terms of changes in share price, which continued to float around the range of JP¥1,464 to JP¥1,575. However, is this the true valuation level of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Suzumo Machinery’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Suzumo Machinery

What's the opportunity in Suzumo Machinery?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 34.91x is currently well-above the industry average of 15.68x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that Suzumo Machinery’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

Can we expect growth from Suzumo Machinery?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Suzumo Machinery's earnings over the next few years are expected to increase by 72%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? 6405’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe 6405 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 6405 for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for 6405, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Suzumo Machinery, you'd also look into what risks it is currently facing. For example - Suzumo Machinery has 2 warning signs we think you should be aware of.

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This article by Simply Wall St is general in nature. 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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