TOA (TSE:1885): Evaluating Valuation Following Completion of Significant Share Buyback Program

TOA (TSE:1885) has just wrapped up its share buyback program, purchasing over 1.7 million shares and retiring around 2.2% of the company’s outstanding stock. This move could catch the eye of investors.

See our latest analysis for TOA.

TOA’s recently completed buyback comes on the heels of a powerful run for shareholders. The latest 90-day share price return is 20.6%, while the total shareholder return over the past year stands at a remarkable 125%. Momentum has clearly been building, with the stock up more than 73% year-to-date, suggesting growing investor confidence and possibly a shift in how the market values TOA’s prospects.

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With shares soaring and a sizable buyback now in the rearview, is TOA’s stock undervalued and primed for further gains, or has the market already priced in all the future growth potential for investors?

Price-to-Earnings of 9.6x: Is it justified?

TOA is trading at a price-to-earnings (P/E) ratio of 9.6x, notably lower than both the Japanese market average and its construction industry peers. With the last close at ¥2,096, the stock appears attractively valued based on this fundamental metric.

The price-to-earnings ratio measures how much investors are willing to pay for each yen of earnings generated. For companies in the construction sector, where earnings can be cyclical but growth surprises matter, the P/E provides a clear lens on investor sentiment toward future prospects and profitability.

Compared to the JP market average P/E of 14.6x, TOA's much lower multiple suggests the stock might be underappreciated or the market hasn’t fully priced in its recent growth acceleration. Versus the industry average of 12.4x and the peer group at 18.1x, TOA offers strong relative value. The fair P/E, based on regression analysis, is estimated at 12.8x. This is a level the market could move towards if current trends persist.

Explore the SWS fair ratio for TOA

Result: Price-to-Earnings of 9.6x (UNDERVALUED)

However, investors should note that TOA’s annual net income has declined slightly, and revenue growth remains modest. This could temper future market enthusiasm.

Find out about the key risks to this TOA narrative.

Another View: Discounted Cash Flow Suggests Overvaluation

Taking another approach, our DCF model estimates TOA’s fair value at ¥1,745.31 per share, which is around 20% below current market prices. This suggests the stock appears overvalued using this method and challenges the optimistic case made by its current price-to-earnings ratio. Can both views be right, or is the market getting ahead of itself?

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 TOA 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 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 TOA Narrative

If you have different insights or wish to explore the numbers personally, you can quickly craft your own perspective using our tools: Do it your way

A great starting point for your TOA 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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