Chiyoda (TSE:6366): Evaluating the Valuation After a 70% Share Price Surge

Chiyoda (TSE:6366) has recently caught the eye of investors following a surge of more than 70% over the past month. The stock’s rapid rise has prompted questions about what is driving the renewed interest and whether it is justified by fundamentals.

See our latest analysis for Chiyoda.

Chiyoda’s share price momentum is hard to ignore, with a 1-day return of nearly 4% and a 74% jump over the past month alone. The rally builds on strong year-to-date gains and has driven the total shareholder return for the past year to 116%. This sustained momentum suggests renewed optimism about the company’s growth story and may signal a shift in how investors are weighing its future prospects in light of recent challenges.

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With such dramatic gains and a price now well above analyst targets, investors must ask whether Chiyoda is still trading at an attractive valuation or if recent optimism means future growth has already been fully priced in.

Price-to-Earnings of 6.5x: Is it justified?

Chiyoda is trading at a price-to-earnings ratio of 6.5x, which makes it look inexpensive relative to its current share price of ¥713 and also stands out when compared to its industry and broader market peers.

The price-to-earnings (P/E) ratio tells investors how much they are paying for every yen of annual earnings the company generates. A lower P/E can either indicate undervaluation or suggest that the market is considering slower growth or higher risks. For Chiyoda, which recently turned profitable and has experienced recent share price momentum, the P/E ratio serves as an important way to assess whether this interest is supported by underlying value.

Chiyoda’s P/E of 6.5x is well below the Japanese construction industry average of 12.4x and the broader Japanese market benchmark of 14.2x. Based on regression analysis, the estimated “fair” P/E for Chiyoda is higher at 10.8x. This suggests that the market may be underpricing Chiyoda’s earnings potential if profitability continues.

Explore the SWS fair ratio for Chiyoda

Result: Price-to-Earnings of 6.5x (UNDERVALUED)

However, deteriorating revenue growth and a significant drop in net income raise questions about the sustainability of Chiyoda’s recent positive momentum.

Find out about the key risks to this Chiyoda narrative.

Build Your Own Chiyoda Narrative

If you want to dig deeper or believe a different story is unfolding, you can quickly build your perspective and analysis in just a few minutes with Do it your way.

A great starting point for your Chiyoda 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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