Shin-Etsu Polymer (TSE:7970): Assessing Valuation After Share Buyback and Dividend Hike Announced

Shin-Etsu Polymer Ltd (TSE:7970) has announced a new share repurchase program along with an increase to its interim dividend, signaling a strong focus on delivering value back to shareholders this quarter.

See our latest analysis for Shin-Etsu PolymerLtd.

Momentum has been strong for Shin-Etsu PolymerLtd, with investor enthusiasm building as the company’s buyback and dividend boost hit the headlines. The share price has climbed 19.1% year-to-date, while its total shareholder return over the past year sits at a healthy 21.2%. Longer-term holders have seen an impressive 73.5% three-year total return. These moves suggest the market is rewarding management’s shareholder-friendly steps and overall performance.

If you’re inspired by companies increasing buybacks or strengthening dividends, it could be worth broadening your search and seeing what’s possible with fast growing stocks with high insider ownership.

But with shares already rallying over 19 percent this year and healthy dividends on offer, the key question is whether Shin-Etsu PolymerLtd is still undervalued, or if investors are now paying up for anticipated future growth?

Price-to-Earnings of 15.1x: Is it justified?

Shin-Etsu PolymerLtd trades at a price-to-earnings (P/E) ratio of 15.1x, while the last close price was ¥1,933. This places the company above some industry benchmarks yet below its immediate peer group average.

The P/E ratio reflects how much investors are willing to pay for each yen of earnings. In the chemicals sector, it is a pivotal number, highlighting if future profit growth is already “priced in” or if there is room for upward re-rating based on robust returns or improving prospects.

At 15.1x, Shin-Etsu PolymerLtd looks attractively valued against peers, whose average P/E ratio sits at 23x. However, compared to the broader Japanese chemicals industry, where the average is 13.2x, the stock appears somewhat expensive. Notably, the market may eventually gravitate toward a fair P/E ratio, which is currently estimated at 14.4x for the sector. This creates tension for new investors: does the company’s accelerating earnings and improving margins merit a premium, or does recent outperformance leave little margin for error?

Explore the SWS fair ratio for Shin-Etsu PolymerLtd

Result: Price-to-Earnings of 15.1x (ABOUT RIGHT)

However, slower revenue growth or a sudden dip in net income could quickly challenge the optimistic outlook that is driving Shin-Etsu PolymerLtd’s upward momentum.

Find out about the key risks to this Shin-Etsu PolymerLtd narrative.

Another View: DCF Valuation Challenges the Multiples

While Shin-Etsu PolymerLtd’s price-to-earnings ratio seems reasonable compared to peers, our SWS DCF model presents a very different perspective. The shares are currently trading above an estimated fair value of ¥955.18, suggesting they may be overvalued despite healthy business momentum. Does this indicate that the market is moving ahead of itself?

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 Shin-Etsu PolymerLtd 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 843 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 Shin-Etsu PolymerLtd Narrative

If this assessment does not align with your own conclusions or you prefer to dig into the numbers yourself, you can craft your unique view on Shin-Etsu PolymerLtd’s outlook in just a few minutes by using Do it your way.

A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding Shin-Etsu PolymerLtd.

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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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