Square Enix (TSE:9684): Evaluating Valuation as Stock Momentum Draws Investor Attention

There has not been a headline-grabbing event for Square Enix Holdings (TSE:9684) this week, but recent moves in the share price are turning more heads across the market. Investors taking a closer look might wonder if there is a signal in the company’s latest stock action or if Square Enix is simply catching its breath after a big run. In a sector known for volatility, the absence of news can sometimes be just as interesting as the big headlines. Looking at the bigger picture, Square Enix Holdings has seen momentum pick up considerably over the past year, with shares up 86% over that stretch and a notable 62% gain year-to-date. That surge comes after a volatile month, which included a 9% pullback. Over the past three months, however, the stock remains up 12%. The company’s bottom line and revenue both posted healthy annual growth, adding to the positive backdrop and raising questions about how much of these gains are rooted in lasting fundamentals. After a year like this, investors might ask themselves whether Square Enix Holdings is undervalued or if all that optimism is already reflected in today’s price.

Price-to-Earnings of 64.7x: Is it justified?

Square Enix Holdings is currently trading at a price-to-earnings (P/E) ratio of 64.7, which is significantly higher than the estimated fair P/E ratio of 33.3. In comparison to its peers and industry averages, this suggests that the market is placing a premium on the company’s current and future earnings potential.

The P/E ratio is a common measure used by investors to evaluate whether a stock’s price accurately reflects its earnings power. For a company in the entertainment sector, a high P/E ratio may indicate that the market anticipates strong profit growth or places high value on the business’s franchise and brand. However, such a premium is ideally supported by robust, sustained earnings growth.

This considerable premium implies that investors expect either exceptional earnings growth, strong future profitability, or are assigning significant intangible value to Square Enix Holdings. If the company does not deliver continued, above-average earnings expansion, maintaining this elevated multiple could be challenging.

Result: Fair Value of ¥4,041.24 (OVERVALUED)

See our latest analysis for Square Enix Holdings.

However, risks remain if growth slows or if the elevated valuation pressures investor expectations, which could potentially trigger sharper corrections in Square Enix's share price.

Find out about the key risks to this Square Enix Holdings narrative.

Another View: The SWS DCF Model

Looking at Square Enix Holdings through our SWS DCF model, a different story emerges. While the current valuation suggests a premium, our model estimates the company may be priced even further above its fair value. Does this method offer a reality check, or is the market still seeing something others are missing?

Look into how the SWS DCF model arrives at its fair value.

Stay updated when valuation signals shift by adding Square Enix Holdings to your watchlist or portfolio. Alternatively, explore our screener to discover other companies that fit your criteria.

Build Your Own Square Enix Holdings Narrative

If you have your own view or want to dig deeper into the numbers, it only takes a few minutes to craft your own perspective. Do it your way.

A good starting point is our analysis highlighting 1 key reward investors are optimistic about regarding Square Enix Holdings.

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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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