Does TOMY Share Price Drop Signal Opportunity After China Product Recall?

If you’re eyeing TOMY Company stock right now, you’re certainly not alone. Plenty of investors are scratching their heads, debating whether it’s the perfect moment to buy, hold, or just move on. With headlines swirling about broader market shifts and global uncertainty, TOMY Company’s share price has seen its fair share of ups and downs. Over the past week, the stock has dipped by 2.8%, continuing a month-long slide of 4.6%, and the year-to-date performance stands at a significant -29.3%. Yet, zoom out a bit and the story changes. Over the past three years, TOMY Company has soared by an eye-opening 165.2%, and the five-year gain is a remarkable 293.8%.

So, are we looking at a temporary bump in the road, or has the stock’s outlook fundamentally changed? While some of the recent cooling may simply reflect a shift in broader risk sentiment in the market, the bigger picture could signal new opportunities (or challenges) for patient investors. To help cut through the noise, it’s worth noting TOMY Company scores a 3 out of 6 on our valuation check, suggesting it remains undervalued in half of the classic metrics analysts watch.

In the next section, let’s break down the specific valuation approaches that go into this score. Stay tuned for a fresh perspective on valuation that just might outshine the usual methods.

Why TOMY Company is lagging behind its peers

Approach 1: TOMY Company Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's true value by forecasting its future cash flows and discounting them back to today’s value. For TOMY Company, this involves calculating the present value of all future Free Cash Flows (FCF), offering a grounded look at the stock’s potential beyond short-term swings.

Currently, TOMY Company reports Free Cash Flow of approximately ¥11.3 billion. Analyst forecasts indicate these cash flows will continue rising, with projections reaching ¥23.0 billion by 2030. The first five years of estimates are based on market analyst expectations, while Simply Wall St extrapolates additional years to provide a longer-term view.

This outlook feeds into the DCF model, which sets TOMY’s intrinsic fair value at ¥5,107 per share. Compared to today’s share price, this calculation suggests the stock is 36.8% undervalued, offering a notable margin of safety for long-term investors who have confidence in the company’s cash generation potential.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests TOMY Company is undervalued by 36.8%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: TOMY Company Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is often the preferred metric for valuing profitable companies like TOMY Company, because it directly relates a company's share price to its current earnings. Investors turn to PE since it offers a straightforward way to gauge how much the market is willing to pay for each unit of profit, making it particularly useful when earnings are stable.

However, deciding what counts as a “normal” or “fair” PE ratio isn’t just about looking at the number in isolation. Factors like expected future growth, industry risks, and profit quality all play a big role. Companies with higher earnings growth or lower risk usually command higher PE ratios, while more volatile or slower-growing firms often trade at lower multiples.

TOMY Company currently trades at a PE of 16.6x. For context, this is slightly above the Leisure industry average of 15.2x but well below the average of its close peers at 32.6x. To provide a more tailored benchmark, Simply Wall St calculates a “Fair Ratio” for TOMY Company. This proprietary metric weighs factors such as earnings outlook, risk, profit margin, industry group, and the company's size. Unlike broad industry or peer comparisons, the Fair Ratio offers a nuanced, company-specific benchmark that reflects what an appropriate PE should be for TOMY’s unique profile. For TOMY Company, the Fair Ratio comes in at 15.4x, just a notch below its actual PE.

In this case, the small gap between TOMY’s PE and its Fair Ratio suggests the stock is fairly valued at current earnings levels, with neither a major premium nor a steep discount attached.

Result: ABOUT RIGHT

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 TOMY Company Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. Narratives are a simple, powerful approach that lets you attach your own story to the numbers. You can connect your assumptions about TOMY Company’s future revenue, earnings, and margins with a personalized fair value estimate.

A Narrative links TOMY Company’s fundamental outlook to a financial forecast, helping translate your big-picture perspective into a concrete fair value. This tool is designed to be user-friendly and is available right now on the Simply Wall St Community page, trusted by millions of investors worldwide.

With Narratives, you can easily compare your estimated fair value with the current share price. This makes it much clearer when to consider buying or selling. Narratives also update as new events unfold, so your forecasts and decisions can stay up to date with every earnings report, news headline, or industry announcement.

For example, the TOMY Company Narratives range from investors forecasting a robust fair value of ¥6,500 per share to more cautious projections around ¥4,000. This flexibility shows just how adaptable this approach can be.

Do you think there's more to the story for TOMY Company? 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.

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