Amada (TSE:6113): Assessing Valuation Following Upgraded Outlook and Capital Optimization Plans

Amada (TSE:6113) just wrapped up a board meeting where the company announced updates to its full-year financial outlook and medium-term business plan. These revisions consider performance trends and focus on higher revenue and profit ahead.

See our latest analysis for Amada.

Amada’s recent board meeting comes after a steady build in momentum for shareholders. The last year’s total shareholder return reached 28.8%, and the share price has jumped over 21% year-to-date, signaling renewed confidence as management accelerates buybacks and refreshes its outlook. News of capital optimization and targeted growth is keeping interest high, aligning short-term moves with a strong long-term track record. Total returns of 87% over three years and 117% over five years underscore this trend.

If Amada’s strategic shift has you thinking beyond the usual names, now is a great moment to broaden your scope and discover fast growing stocks with high insider ownership

But with shares rallying and new forecasts on the table, is Amada actually undervalued at these levels? Or has the market already priced in the company’s next phase of growth?

Price-to-Earnings of 20.6x: Is it justified?

Amada's shares trade at a price-to-earnings (P/E) ratio of 20.6x, noticeably lower than its peer group average of 26.4x. The latest close at ¥1,840 sits below levels seen in some competitors, suggesting the market ascribes a more modest growth outlook to Amada, at least relative to the broader group.

The price-to-earnings ratio measures how much investors are willing to pay for every yen of company earnings. It is a key market barometer for established industrial firms like Amada, where market participants weigh profitability and future growth prospects.

This P/E suggests investors expect earnings growth, but not to the level of major peers. The gap to the peer average may reflect market skepticism about Amada’s ability to ramp up profits at the pace of the sector, especially given recent margin trends. Notably, Amada trades more expensively than the broader machinery industry in Japan, which commands an average P/E of 13.5x. While below peers, Amada's multiple is above the level the market could potentially revert to if forecasts disappoint.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Earnings of 20.6x (UNDERVALUED)

However, slowing revenue momentum or earnings shortfalls could quickly challenge the undervaluation case and change sentiment around Amada’s outlook.

Find out about the key risks to this Amada narrative.

Another View: SWS DCF Model Offers a Second Opinion

Looking beyond earnings multiples, our DCF model takes a more fundamental approach. It estimates Amada’s fair value at ¥1,878.3, compared to the recent market price of ¥1,840. This small discount suggests shares may be slightly undervalued. However, is it enough to tip the scales for investors?

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 Amada 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 868 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 Amada Narrative

If you have your own perspective or enjoy conducting independent analysis, it takes just a few minutes to dig into the numbers and shape your own view, so why not Do it your way

A great starting point for your Amada research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

Looking for more investment ideas?

Smart investors are constantly expanding their horizons, and the right tools put you a step ahead. Don’t let the next opportunity pass you by. These handpicked lists could lead you to your next big winner.

• Uncover high-yield opportunities with these 15 dividend stocks with yields > 3% for those seeking consistent income and stability in turbulent markets.
• Ride the AI wave and capture growth potential by searching through these 27 AI penny stocks that are transforming the world with artificial intelligence.
• Capitalize on mispriced gems using these 868 undervalued stocks based on cash flows and position yourself before the crowd spots tomorrow’s winners.

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