Sakata Seed (TSE:1377) Share Buyback Sparks Fresh Valuation Debate: Is the Stock Trading Below Its True Worth?

Sakata Seed (TSE:1377) just announced a share buyback program and plans to repurchase about 2.5% of its issued shares. The move aims to return profits to shareholders and provide capital flexibility in a changing business environment.

See our latest analysis for Sakata Seed.

Sakata Seed’s announcement of a sizable share buyback has sparked fresh interest, with the stock climbing 8% over the past week and gaining 12% year-to-date on a share price return basis. While the buyback has buoyed near-term sentiment, the company’s 1-year total shareholder return still sits at 8%. This reflects a mixed longer-term picture as momentum begins to build again.

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With the stock rebounding and trading at a discount to analyst targets, the key question now is whether Sakata Seed is truly undervalued or if the market is already factoring in its future growth prospects.

Price-to-Earnings of 13.6x: Is it justified?

Sakata Seed currently trades at a price-to-earnings (P/E) ratio of 13.6x, placing it just below the peer group average of 14.5x. This suggests the market is assigning a slight discount relative to its sector peers.

The price-to-earnings ratio measures how much investors are willing to pay for each unit of a company's earnings. For a company like Sakata Seed, which operates in a steady but low-growth sector, the P/E can reflect investor expectations about both growth prospects and the quality of its earnings.

Despite near-term earnings headwinds, Sakata Seed is being valued more attractively than other food sector stocks. However, compared to the estimated "fair" P/E ratio of 12.9x, the market is placing a small premium. This suggests the valuation could have limited upside if fundamentals do not improve. If the company's earnings rebound or operational leverage materializes, the stock could move closer to that fair level.

Explore the SWS fair ratio for Sakata Seed

Result: Price-to-Earnings of 13.6x (UNDERVALUED)

However, weak net income growth and a mixed longer-term return profile could challenge the case for a sustained rebound if fundamentals do not strengthen soon.

Find out about the key risks to this Sakata Seed narrative.

Another View: What Does the DCF Model Say?

Taking a different approach, our DCF model suggests Sakata Seed’s shares are actually trading at a deep discount to intrinsic value. The current price of ¥3,840 sits roughly 32% below our fair value estimate of ¥5,612. This result challenges what the P/E ratio indicates. Are investors missing a hidden opportunity here, or is there a reason for the ongoing discount?

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 Sakata Seed 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 Sakata Seed Narrative

If your perspective differs or you prefer hands-on analysis, you can easily piece together your own view in just a few minutes. Do it your way

A great starting point for your Sakata Seed research is our analysis highlighting 1 key reward 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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