How SMC’s 26% Drop and China Exposure Affect Its 2025 Valuation

Deciding what to do with SMC stock lately might feel like picking your way through a maze. Maybe you’re wrestling with whether the recent dips signal a chance to buy in, or if there’s still a bigger story waiting to play out. SMC’s share price has seen more red than green this year, with a 26.5% drop since January and a 23.1% decline over the past year. Even when we step back and look over three or five years, the returns are still underwater. However, the past week’s modest gain of 0.4% offers just a hint that sentiment could be stabilizing, perhaps as investors digest broader market changes and shifting risk perceptions around key sectors.

Of course, falling prices alone don’t automatically make a stock “undervalued,” but they do turn the spotlight onto how the market is judging a company like SMC. That’s where valuation checks come in handy. SMC currently scores a 3 out of 6 on the value checklist, suggesting it meets half of the classic signals analysts look for when hunting for bargains. But as we’ll explore, no one metric ever tells the whole story, especially for a company navigating choppy waters.

Let’s take a closer look at how the main valuation approaches apply to SMC right now, and why the usual checks may or may not be telling you the full truth. Stick around, because there’s an even more useful way to size up SMC’s worth, which we’ll dive into at the end of this article.

Why SMC is lagging behind its peers

Approach 1: SMC Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future free cash flows and discounting them back to today's terms. This helps investors understand what a business could be worth based on its ability to generate cash over time.

For SMC, analysts calculate the company's latest twelve months Free Cash Flow at ¥101.4 Billion. Projections from analyst estimates suggest steady growth over the next five years, with forecasted free cash flows reaching up to ¥144.1 Billion in 2030. Beyond those estimates, longer-range numbers are extrapolated using growth assumptions. The figures for years after 2030 become less certain but provide a full picture of SMC's cash-generating potential.

After discounting these future cash flows using a two-stage Free Cash Flow to Equity method, the DCF model estimates SMC’s intrinsic value at ¥40,979 per share. When compared to the current share price, this suggests SMC is around 9.7% above its fair value according to DCF. This means the stock looks slightly overvalued based on current assumptions.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for SMC.

Simply Wall St performs a valuation analysis on every stock in the world every day (check out SMC's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: SMC Price vs Earnings

The Price-to-Earnings (PE) ratio is one of the most useful tools for valuing steady and profitable companies like SMC, as it reflects how much investors are willing to pay today for a company's future earnings. A company with reliable profits and growth prospects is well suited to this approach. For these reasons, PE is a go-to metric for judging whether a stock’s valuation stacks up against others.

While the "right" PE ratio often depends on factors like future growth expectations and investment risks, a higher anticipated growth rate or lower risk profile can justify a higher multiple. SMC currently trades at a PE ratio of 20x. For context, this is below the peer average of 21.8x, but above the broader Machinery industry average of 13.5x. This signals that investors are valuing SMC’s earnings more richly than many in its sector, but slightly behind the closest competitors.

Rather than relying solely on these basic benchmarks, Simply Wall St’s "Fair Ratio" offers a more tailored view. This proprietary metric adjusts for SMC's earnings growth outlook, industry, profit margins, market cap, and risk factors, resulting in a Fair Ratio of 21.5x. Since SMC's actual PE is just a touch below this number, the stock appears about fairly valued on this measure.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your SMC Narrative

Earlier we mentioned there is an even better way to understand a company’s true worth, so let’s introduce you to Narratives. A Narrative is a simple yet powerful approach that puts your perspective at the heart of investment analysis, letting you connect the company’s story, your own forecasts for future revenue, profits, and margins, and your estimated fair value, all into one easy-to-follow framework.

Narratives are available for SMC and thousands of other companies on Simply Wall St’s platform within the Community page, where millions of investors share and compare their views. With Narratives, you can quickly see how your Fair Value compares to the current Price, helping you make smarter buy or sell decisions in real time. Narratives automatically update when new company news or earnings come in, so your insights stay fresh. For example, some SMC investors may forecast much higher growth or lower risk than others, resulting in a Fair Value that is significantly above or below the current price. This helps each investor decide on their own next move.

Do you think there's more to the story for SMC? Create your own Narrative to let the Community know!

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