Kokuyo (TSE:7984): Exploring Valuation After Latest Share Buyback and Stock Split

Kokuyo (TSE:7984) has announced the acquisition of more than 2.7 million shares via a recent buyback on the Tokyo Stock Exchange, following the completion of a stock split and continuing previous buyback activity.

See our latest analysis for Kokuyo.

Kokuyo’s share price momentum remains strong after the recent buyback, with a year-to-date share price return of 32.04% and a 1-year total shareholder return of 32.59%. That momentum caps off a significant three-year total return of 110% and an impressive five-year total return of 195%, reflecting both business stability and rising investor confidence, even after a short-term dip earlier this quarter.

If Kokuyo’s bold approach to capital management has you curious about what other companies have been building sustained track records, now’s a great opportunity to discover fast growing stocks with high insider ownership

With Kokuyo’s strong run and ongoing buybacks, is the current price still attractive to new investors, or has the market already accounted for the company’s future growth potential?

Price-to-Earnings of 17.6x: Is it justified?

Kokuyo's current valuation stands out, with a price-to-earnings ratio (P/E) of 17.6x compared to its peers. The latest closing share price is ¥891.1, which reflects a notable premium.

The price-to-earnings ratio is a quick snapshot that tells us how much investors are willing to pay for each yen of Kokuyo's earnings. In the context of Japanese commercial services, this multiple signals investor optimism for future profit streams or business stability.

However, Kokuyo’s P/E is considerably higher than the industry average of 12.8x and also above its estimated fair P/E of 17.4x. This signals a market premium, either due to expected sustained earnings, strong momentum, or perhaps recent buyback activity. If market confidence fades, there could be a reset towards the industry or fair multiple level.

Explore the SWS fair ratio for Kokuyo

Result: Price-to-Earnings of 17.6x (OVERVALUED)

However, if revenue or net income growth slows, or if market optimism wanes, Kokuyo’s premium valuation could face pressure in the months ahead.

Find out about the key risks to this Kokuyo narrative.

Another View: Discounted Cash Flow Perspective

While Kokuyo’s earnings multiple looks pricey, our DCF model tells a different story. According to this approach, the current share price is trading around 40% below what the SWS DCF model estimates as its fair value. Does this mean the market is missing something, or are there hidden risks?

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 Kokuyo 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 870 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 Kokuyo Narrative

If you want to dive deeper or challenge these results, take a few minutes to uncover new perspectives by exploring the data for yourself: Do it your way

A great starting point for your Kokuyo 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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