SWCC (TSE:5805): Rethinking Valuation After Earnings Guidance and Dividend Hike

SWCC (TSE:5805) drew market attention after raising its full-year earnings guidance. The company pointed to higher operating profit in its Energy and Infrastructure division and stronger momentum across Communication, Mobility, and Semiconductor businesses.

See our latest analysis for SWCC.

SWCC’s momentum has been building, with the company’s recent guidance upgrade and dividend boost fueling a 50% share price return over the past month and a remarkable 47.6% total shareholder return over the past year. These updates are propelling interest, particularly in light of a five-year total shareholder return exceeding 650%, which suggests investors increasingly recognize both growth prospects and a renewed focus on shareholder rewards.

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With shares posting rapid gains and earnings guidance freshly raised, investors may wonder if SWCC’s current price already reflects all the company’s upbeat news, or if further upside still remains to be realized.

Price-to-Earnings of 20.9x: Is it justified?

SWCC is currently priced at a price-to-earnings (P/E) ratio of 20.9x, which tells investors how much they are paying for each yen of current earnings. The latest closing price reflects market optimism, but is it warranted compared to peers?

The price-to-earnings ratio is a commonly used metric to value companies, especially in industries driven by steady profits. For SWCC, this multiple means investors are willing to pay 20.9 times the company’s earnings over the past year. The ratio can serve as a gauge for expectations regarding future growth.

At 20.9x, SWCC is considered good value when compared to the peer average of 22.7x, offering a slight discount. It is above the JP Electrical industry average of 13x, suggesting the market is pricing in stronger performance or greater potential for SWCC. Our analysis also points out that the current multiple is below the estimated Fair Price-to-Earnings Ratio of 22.3x, indicating room for the market to move higher if performance justifies it.

Explore the SWS fair ratio for SWCC

Result: Price-to-Earnings of 20.9x (UNDERVALUED)

However, a pullback could occur if earnings growth slows or if share price momentum fades from current elevated levels.

Find out about the key risks to this SWCC narrative.

Another View: Discounted Cash Flow Perspective

Looking through the lens of our SWS DCF model, SWCC’s current share price of ¥10,700 sits above the estimated fair value of ¥9,576. This view suggests the market is willing to pay a premium on future cash flows, potentially pricing in extra optimism. Is the stock running ahead of itself or is the market seeing something the model does 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 SWCC 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 918 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 SWCC Narrative

Everyone draws their own conclusions from market data. If these findings differ from your viewpoint or you want to run your own numbers, you can quickly do so and Do it your way

A great starting point for your SWCC 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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