What Do IHI’s Record Gains Mean for Its True Value in 2025?

If you have been eyeing IHI and wondering where it could go next, you are in good company. This is a stock that has captured plenty of attention, and not just because of its headline-grabbing returns. Over the past year alone, IHI has soared an incredible 139.2%, and if you zoom out further, its five-year return of 1059.1% is truly something to behold. While the most recent month saw a mild dip of -3.4%, last week's gain of 6.8% suggests that enthusiasm might not be fading anytime soon.

Some of that momentum can be traced back to shifting market dynamics. Investors are growing more comfortable with certain types of risk, particularly in sectors where long-term growth stories are being rewarded. IHI’s performance is closely tied to those broader trends, and when sentiment shifts, the stock can really move. Year-to-date, it is up a stunning 83.2%. Numbers like these demand a closer look, especially if you are deciding whether to buy, hold, or take profits.

But eye-popping performance numbers only tell part of the story. What about valuation, and is IHI really trading at a good price after this surge? We ran IHI through six classic valuation checks, and it only passed in one, earning a rather modest valuation score of 1. That might give you pause, but the full picture is always more nuanced. So, how should you approach the numbers? Let's break down each of the major valuation methods and stick around, because at the end of the article, there is an even better way to get a handle on what IHI is really worth.

IHI scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: IHI Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future cash flows and discounting them back to today's value. This method gives investors a glimpse of what a business might truly be worth, independent of market swings or short-term sentiment.

For IHI, the most recent trailing twelve months Free Cash Flow (FCF) is ¥94.2 billion. Analyst estimates suggest FCF will see strong growth over the next five years, rising from ¥27.3 billion in 2026 to ¥115.2 billion by 2030. After that, projections are based on more conservative growth rates provided by Simply Wall St. All cash flows here are stated in Japanese yen (¥).

When all these future FCFs are summed up and discounted, the resulting DCF intrinsic value comes to ¥12,931 per share. However, this is about 24.7% lower than IHI's current share price, meaning the market is pricing in significantly more optimism than DCF fundamentals suggest.

Result: OVERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests IHI may be overvalued by 24.7%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: IHI Price vs Earnings

For profitable companies like IHI, the Price-to-Earnings (PE) ratio is a widely used metric because it connects a company’s share price directly to its earnings. Investors favor the PE ratio as a valuation tool because it reflects how much the market is willing to pay today for a yen of current or future earnings. This makes it especially relevant when assessing well-established businesses with steady profitability like IHI.

Growth expectations and risk are both key drivers of what is considered a “normal” or “fair” PE ratio. Higher anticipated earnings growth can justify a higher PE, while elevated risks or unpredictable profits usually call for a discount. IHI currently trades at a PE of 23.1x. This is above the Machinery industry average of 13.5x, and also exceeds the average among close peers, which is 20.6x. On the surface, this might suggest IHI is expensive compared to its industry and peer group.

This is where Simply Wall St’s “Fair Ratio” comes into play. The Fair Ratio for IHI is calculated at 27.6x, a proprietary measure that considers not only IHI’s growth prospects, profit margins, and risks, but also its industry positioning and market capitalization. This approach goes beyond the limitations of simple peer or industry comparisons, providing a more balanced and company-specific valuation anchor. Given IHI’s current PE is 23.1x while its Fair Ratio is 27.6x, the shares actually appear to be somewhat inexpensive using this more comprehensive measure.

Result: UNDERVALUED

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 IHI Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your own story and context for a company like IHI, providing a way to articulate not just what you believe about its future, but also why you believe it, directly connecting those beliefs to forecasts for revenue, earnings, and profit margins.

Narratives help you link IHI’s business story to a tangible financial forecast and, ultimately, a fair value estimate. This makes it easier to decide when the stock is a buy, hold, or sell. Accessible in the Community page on Simply Wall St’s platform, this tool is used by millions of investors who want clear, actionable insights that respond quickly as news or earnings change the landscape.

With Narratives, you can instantly compare your estimated Fair Value with IHI’s current price. Since these forecasts update automatically with new information, you will always be working with the most current data.

For example, one investor might focus on risks like slowing civil aero engine sales and rising SG&A expenses, arriving at a cautious fair value of ¥7,500, while another might highlight strong sales, improved margins, and favorable currency rates to justify a fair value as high as ¥12,500.

Do you think there's more to the story for IHI? 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