Assessing HOYA (TSE:7741) Valuation After a 10% One-Month Share Price Rise

HOYA (TSE:7741) continues to draw attention as investors assess its performance over the past month, with shares rising nearly 10%. This steady uptrend prompts a closer look at what is driving recent momentum for the optical products maker.

See our latest analysis for HOYA.

After steadily climbing for the past month, HOYA’s 1-month share price return of nearly 10% builds on an already strong year, with the company delivering a 17.8% total shareholder return over the past 12 months. This recent surge suggests that investors are becoming more optimistic about HOYA’s growth prospects, especially as the company continues to execute well despite broader market volatility.

If you’re interested in uncovering other promising players in the sector, take the opportunity to explore the latest discoveries in healthcare stocks. See the full list for free.

This impressive run raises a key question for investors: Is HOYA’s robust growth already reflected in its elevated share price, or does the current momentum offer an attractive entry point for those seeking further upside?

Price-to-Earnings of 37.9x: Is it justified?

HOYA’s soaring share price has pushed its price-to-earnings (P/E) ratio up to 37.9x, which puts it well above the level seen in the wider Japanese medical equipment industry. For comparison, the industry average sits at just 15.7x, making HOYA’s valuation appear steep by traditional standards.

The price-to-earnings ratio indicates how much investors are willing to pay today for each ¥1 of company earnings. In high-growth or highly profitable sectors, this multiple tends to run higher. HOYA’s elevated P/E may reflect expectations for continued outperformance or a market premium for its earnings quality and growth consistency.

Relative to its industry, HOYA’s P/E ratio is more than double the average. This suggests investors are eager to pay up for its track record. Even against an estimated fair P/E ratio of 35x derived from regression analysis, shares still trade at a premium. This signals confidence but also a potential for mean reversion should the outlook cool.

Explore the SWS fair ratio for HOYA

Result: Price-to-Earnings of 37.9x (OVERVALUED)

However, slower revenue growth or a reversal in recent net income trends could quickly dampen investor optimism and challenge HOYA’s premium valuation.

Find out about the key risks to this HOYA narrative.

Another View: Discounted Cash Flow Says Shares Are Overvalued

Looking at HOYA from another angle, our SWS DCF model also suggests that the shares may be overvalued, with HOYA currently priced well above its estimated fair value. This valuation challenges the optimism implied by the high price-to-earnings ratio. Are both models being too cautious, or is risk building?

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 HOYA 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 HOYA Narrative

Keep in mind, if you see the numbers differently or want to dive deeper, you can develop your own perspective in just a few minutes with Do it your way.

A good starting point is our analysis highlighting 2 key rewards investors are optimistic about regarding HOYA.

Ready for Your Next Investment Move?

Don’t let new opportunities slip away. Make smarter, faster investing decisions by tapping into the best stock ideas curated by seasoned market analysts. Take action now and put your money to work where it matters most.

• Unlock income potential by targeting companies with reliable yields. Start with these 17 dividend stocks with yields > 3% that exceed the 3% mark for added stability.
• Catalyze your portfolio’s future with these 27 AI penny stocks and back groundbreaking businesses at the forefront of artificial intelligence and automation.
• Capture value opportunities instantly by tracking these 877 undervalued stocks based on cash flows, packed with stocks trading below their cash flow potential.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com