Mitsubishi Gas Chemical (TSE:4182) Valuation in Focus After Ultra-Low Carbon Methanol Supply Deal Announcement

Investors are taking a close look at Mitsubishi Gas Chemical Company (TSE:4182) after it announced a major long-term deal with Transition Industries LLC to supply ultra-low carbon methanol. This move highlights the company’s growing focus on sustainable chemicals.

See our latest analysis for Mitsubishi Gas Chemical Company.

The momentum around Mitsubishi Gas Chemical’s big sustainability push is showing up in the numbers. The share price has climbed 19.6% over the past 90 days, with the total shareholder return sitting at 10.5% for the past year and a standout 67.8% over three years. Investors seem to be recognizing the company’s growing emphasis on green initiatives and its potential for long-term value.

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With shares up nearly 20% in just three months and new deals driving momentum, investors now face a classic dilemma: Is Mitsubishi Gas Chemical undervalued, or is the promise of future growth already fully priced in?

Price-to-Earnings of 13.3x: Is it justified?

Relative to its latest closing price of ¥2,888, Mitsubishi Gas Chemical's price-to-earnings (P/E) ratio of 13.3x signals the market values its earnings slightly above the industry average. This multiple can be a useful lens to judge whether investors are paying more or less for each unit of current profit compared to other chemical companies in Japan.

Here, the P/E ratio tells us how much investors expect from the company's future profitability. For Mitsubishi Gas Chemical, the 13.3x figure means investors are pricing in some optimism for continued earnings, but it is not an extreme premium. Still, this level is slightly above both the Japanese Chemicals industry average (13x) and its peer group (12.8x), suggesting the company is seen as a bit more attractive or less risky by the market.

However, the company trades at a better value when compared with its estimated fair P/E of 16.6x. This indicates the market could be discounting upside potential. If investor sentiment or fundamentals shift, there is room for the market multiple to move up toward that fair ratio.

Explore the SWS fair ratio for Mitsubishi Gas Chemical Company

Result: Price-to-Earnings of 13.3x (OVERVALUED)

However, slower revenue growth and a discount to analyst price targets could affect Mitsubishi Gas Chemical’s momentum if market confidence falters.

Find out about the key risks to this Mitsubishi Gas Chemical Company narrative.

Another View: The SWS DCF Model Says Undervalued

Taking a different approach, our DCF model suggests Mitsubishi Gas Chemical may be materially undervalued. The current price of ¥2,888 is 38.5% below our DCF-derived fair value estimate of ¥4,695.14. This method focuses on future cash flows and offers a long-range view that does not rely on market multiples.

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 Mitsubishi Gas Chemical Company 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 870 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 Mitsubishi Gas Chemical Company Narrative

If you would rather form your own perspective or dig further into the data, you can craft a personalized outlook in just a few minutes. Do it your way

A great starting point for your Mitsubishi Gas Chemical Company research is our analysis highlighting 3 key rewards and 1 important warning sign 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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