Sumitomo (TSE:8053) Valuation in Focus After Completing Major Share Buyback Program

Sumitomo (TSE:8053) has wrapped up a sizeable share repurchase program, buying back 7,120,575 shares for ¥24,067 million between July and September. The completion marks a key milestone under their latest buyback plan.

See our latest analysis for Sumitomo.

Sumitomo’s recent buyback comes as momentum has gathered steam in the stock, with a robust 20.4% share price return over the past three months and a standout 40.2% total shareholder return for the year. While the repurchase program and recent board meeting have added to the buzz, the strength in both short- and long-term returns suggests investors are seeing renewed growth potential. This trend has only accelerated over the past five years, where total shareholder returns hit 359%.

If Sumitomo’s progress has you curious about what else is gaining traction, now’s an excellent time to broaden your investing horizons and discover fast growing stocks with high insider ownership

But with shares nearing analyst targets and a stellar run behind it, investors may wonder whether Sumitomo’s current valuation leaves room for further upside or if the market has already accounted for all that future growth.

Price-to-Earnings of 8.9x: Is it justified?

Sumitomo is trading at a price-to-earnings ratio of 8.9x, which is firmly below both its peers and industry averages. This makes the current valuation appear attractive relative to its sector.

The price-to-earnings (P/E) ratio compares a company’s share price to its earnings per share, offering investors insight into how much the market is willing to pay for near-term earnings. For diversified trading businesses like Sumitomo, this multiple is a key tool for benchmarking value and future growth expectations.

Given that Sumitomo’s P/E of 8.9x is lower than the peer average of 12.4x, and also below the JP Trade Distributors industry average of 9.8x, the market appears to be pricing the stock with a notable discount. The estimated “fair” P/E for Sumitomo is even higher at 18.8x, which highlights a potential upside should the market sentiment realign with underlying earnings power and broader valuation trends in the sector.

Explore the SWS fair ratio for Sumitomo

Result: Price-to-Earnings of 8.9x (UNDERVALUED)

However, slower net income growth and shares already trading close to analyst targets could limit near-term upside, even with strong performance so far.

Find out about the key risks to this Sumitomo narrative.

Another View: SWS DCF Model Suggests Even More Upside

While the price-to-earnings analysis indicates Sumitomo is undervalued compared to peers, our DCF model presents an even more optimistic perspective. According to the SWS DCF model, the shares are trading about 10% below the estimated fair value. This could point to further upside. However, are forecasts for future cash flows too rosy?

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 Sumitomo 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 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 Sumitomo Narrative

If you'd like to dive into the numbers yourself or want to craft a narrative that better reflects your own research and outlook, you can do so in just a few minutes. Do it your way

A great starting point for your Sumitomo research is our analysis highlighting 3 key rewards and 3 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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