A Look at Taisei's (TSE:1801) Valuation Following Upgraded Earnings Guidance and Enhanced Shareholder Returns

Taisei (TSE:1801) just delivered a substantial upgrade to its earnings outlook for the year, following a series of upbeat developments. These include stronger results from its domestic businesses, major project progress, and the addition of Toyo Construction as a subsidiary.

See our latest analysis for Taisei.

Momentum has been building for Taisei, with a 22.5% share price return over the past month and nearly doubling year-to-date. The company’s successful buyback, sharply boosted dividends, and upgraded earnings forecast have all contributed to renewed investor confidence. This is reflected in a remarkable 96.4% total shareholder return over the past year.

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With these impressive gains and upgraded forecasts on the table, the key question now is whether Taisei shares remain attractively valued or if the recent surge fully reflects its improved outlook and leaves little room for further upside.

Price-to-Earnings of 14.9x: Is it justified?

At a price-to-earnings (P/E) ratio of 14.9 times, Taisei trades below the peer average of 16.4x and stands out relative to the company's recent earnings surge and share price momentum.

The price-to-earnings ratio measures what investors are willing to pay for each unit of profit generated by the company. For an established business like Taisei, this figure is a benchmark for how the market values its current and future profitability.

With earnings growth far outpacing its five-year average, this lower-than-peer P/E may imply the market is underappreciating Taisei’s recent performance. Compared to the wider construction industry, Taisei’s P/E sits above the industry average of 11.6x. This indicates that its strong earnings momentum and upgraded outlook still command a premium to the sector. However, our models suggest a fair P/E of 18.2x, a level the market could shift toward if momentum is sustained.

Explore the SWS fair ratio for Taisei

Result: Price-to-Earnings of 14.9x (UNDERVALUED)

However, a sharp reversal in construction demand or missed earnings could quickly undermine the current optimism surrounding Taisei’s outlook.

Find out about the key risks to this Taisei narrative.

Another View: What Does Our DCF Model Say?

While Taisei’s current valuation looks attractive based on earnings multiples, our SWS DCF model provides another angle. It estimates that Taisei is trading nearly 23.4% below its fair value. This suggests the shares could present even more upside if the model’s assumptions hold true.

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 Taisei 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 897 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 Taisei Narrative

If you see the story differently, or want to dig into the data and shape your own insights, you can craft a fresh narrative in just a few minutes. Do it your way

A great starting point for your Taisei 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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