Iwatani (TSE:8088): Is the Stock Undervalued After Recent Pullback?

Iwatani (TSE:8088) shares have drifted lower lately, with a modest dip of nearly 1% in the past day and a decline of 4% over the past month. Investors appear to be weighing recent developments against the company's long-term growth profile, especially as its annual revenue and net income growth remain positive.

See our latest analysis for Iwatani.

While Iwatani’s share price has softened short term, with a recent 4.5% drop over the last month and trading at ¥1,593, the bigger picture shows some impressive long-term resilience, including a strong 53.4% five-year total shareholder return. Market momentum seems to be taking a pause as investors digest recent gains and positive growth metrics.

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The key question now is whether Iwatani’s recent pullback reveals an undervalued stock with room to run, or if the current share price has already factored in the company’s future growth prospects. Is there still a buying opportunity here?

Price-to-Earnings of 10.5x: Is it justified?

Iwatani’s shares trade at a price-to-earnings ratio of 10.5x based on the latest close at ¥1,593, which is below the broader Japanese market average. This suggests the market may be undervaluing the company’s projected future earnings relative to its peers.

The price-to-earnings (PE) ratio measures how much investors are willing to pay for each yen of earnings, providing insight into expectations for growth and future profitability. For an energy sector company like Iwatani, a relatively low PE could reflect cautious optimism around steady, but not explosive earnings expansion.

Iwatani’s PE ratio is attractive compared to both the Japanese market (14.4x) and the Asian Oil and Gas industry average (12.9x), hinting that the stock could be appealing for value-focused investors. Furthermore, according to regression analysis, the estimated fair PE ratio stands at 15.6x, a level the market could move towards if confidence in earnings prospects strengthens.

Explore the SWS fair ratio for Iwatani

Result: Price-to-Earnings of 10.5x (UNDERVALUED)

However, persistent share price weakness and slowing yearly returns highlight that shifting market momentum or earnings setbacks could challenge Iwatani’s undervaluation thesis.

Find out about the key risks to this Iwatani narrative.

Another View: What Does the DCF Model Say?

While Iwatani’s price-to-earnings ratio points toward undervaluation, our DCF model offers a more cautious take. According to the SWS DCF model, the current share price of ¥1,593 is actually above its estimated fair value of ¥1,170.27. This suggests that shares might be more than fully priced in at current levels. Does the DCF model reveal potential downside, or is the earnings-based view a better guide?

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 Iwatani 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 Iwatani Narrative

If you want to dig deeper or think a different perspective tells the true story, you can form your own narrative in just a few minutes: Do it your way

A great starting point for your Iwatani research is our analysis highlighting 2 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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