SECOM (TSE:9735) Valuation in Focus After Major Share Buyback, New Earnings Guidance, and Stock Split

SECOM (TSE:9735) just wrapped up a major share buyback initiative, completing repurchases totaling 2.72% of its outstanding shares. In addition, the company released fresh earnings guidance and updated dividend details for investors.

See our latest analysis for SECOM.

After a soft patch over the past quarter, momentum seems to be picking up for SECOM. Recent buyback and guidance announcements helped drive a 2.26% single-day share price gain and a 3.85% move this week. Over the past year, shareholders have seen a total return of 7.5%, and the three-year total shareholder return stands at a strong 36.4%, suggesting consistent value creation over time.

If the recent buyback and dividend moves have you wondering what else is on the move, now is the perfect time to broaden your search and discover fast growing stocks with high insider ownership

That leaves investors with a key decision: is SECOM now trading at an attractive discount, or has recent momentum already priced in its growth prospects and left limited room for further upside?

Price-to-Earnings of 20.8: Is it justified?

SECOM trades at a price-to-earnings ratio of 20.8, well above peer and industry averages, raising questions about whether the premium is warranted with the stock's current fundamentals.

The price-to-earnings (P/E) ratio measures how much investors are willing to pay for each unit of earnings. In the commercial services sector, the P/E ratio can often reflect growth prospects, profitability, and perceived business stability. Higher figures generally imply optimism for the company's future growth and profitability.

SECOM’s P/E is notably higher than the average for its industry (13.7) and its direct peers (14.5), suggesting the market has priced in stronger expectations for future performance. However, the company’s earnings are forecast to grow at a modest rate, and actual earnings growth has been below both the industry and SECOM’s own longer-term average. Interestingly, compared to our estimate of a fair P/E ratio for SECOM, calculated at 21.4, the current valuation is much more reasonable. If market sentiment aligns with this fair value multiple, the share price could see either continued support or moderation.

Explore the SWS fair ratio for SECOM

Result: Price-to-Earnings of 20.8 (OVERVALUED)

However, there are still risks. Slower earnings growth or a change in market sentiment could challenge the case for SECOM’s current premium valuation.

Find out about the key risks to this SECOM narrative.

Another View: Discounted Cash Flow Perspective

While SECOM looks pricey based on its price-to-earnings ratio, a different story emerges through our DCF model. This approach suggests the stock is actually trading about 18% below its estimated fair value, which hints at undervaluation. Could the market be overlooking SECOM’s underlying worth?

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 SECOM 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 926 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 SECOM Narrative

If you see things differently or want to delve into the numbers on your own terms, you can quickly build your own view in just minutes with Do it your way

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding SECOM.

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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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