Evaluating Sumitomo Realty & Development (TSE:8830) After Buyback, Guidance Hike, Dividend Boost, and Stock Split Moves

Sumitomo Realty & Development (TSE:8830) has just unveiled plans for a major share repurchase program, raised its full-year earnings outlook, and announced a higher interim dividend. These actions signal its solid confidence in future growth.

See our latest analysis for Sumitomo Realty & Development.

This string of shareholder-friendly moves, along with a recently improved earnings forecast and plans for a stock split, clearly resonated with investors. Sumitomo Realty & Development’s one-year total shareholder return is a remarkable 61%, and momentum has only grown stronger over the last few months.

If Sumitomo Realty’s surge has you wondering what else is gaining steam, it might be time to discover fast growing stocks with high insider ownership

But with shares already climbing 61% in a year and the company forecasting stronger results, is Sumitomo Realty & Development truly undervalued, or has the market already accounted for all the good news?

Price-to-Earnings of 16.8x: Is it justified?

Sumitomo Realty & Development is currently trading at a price-to-earnings (P/E) ratio of 16.8x, notably higher than its industry peers. At the last close price of ¥7,254, the stock commands a premium compared to the average ratios found in Japan’s real estate sector.

The price-to-earnings ratio measures how much investors are willing to pay for each yen of the company’s earnings. It is a useful gauge for valuing companies in sectors with stable profits and established business models, such as real estate. A higher P/E can signal expectations for sustained growth or perceived lower risk, but sometimes it might also reflect over-optimism.

In this case, Sumitomo Realty & Development’s P/E ratio of 16.8x is significantly above the Japanese real estate industry average of 11.4x and also above the peer average of 14.6x. While this premium could be justified by the company's recent acceleration in earnings or shareholder returns, the market is valuing future earnings higher than for other similar companies. However, the estimated fair P/E for the company is 18.5x, suggesting that this level could be warranted if growth targets are met.

Explore the SWS fair ratio for Sumitomo Realty & Development

Result: Price-to-Earnings of 16.8x (OVERVALUED)

However, if revenue or net income growth is slower than expected, investors may reevaluate Sumitomo Realty & Development's current premium valuation.

Find out about the key risks to this Sumitomo Realty & Development narrative.

Another View: Discounted Cash Flow Model

While valuation by earnings may suggest Sumitomo Realty & Development is trading at a premium, the SWS DCF model presents a much starker picture. According to our DCF analysis, the current share price of ¥7,254 is well above the model's estimate of fair value at just ¥232.88, indicating significant overvaluation. Can the market remain this far ahead of fundamentals, or is a reality check coming?

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 Sumitomo Realty & Development 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 926 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 Sumitomo Realty & Development Narrative

If you have a different perspective or want to dig into the numbers yourself, you can put together your own view of the story in under three minutes with Do it your way.

A great starting point for your Sumitomo Realty & Development research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

Looking for more investment ideas?

Smart investors never settle for just one opportunity. Make sure you’re tuned in to the trends shaping tomorrow’s markets by checking out these top stock ideas.

• Capitalize on high yields and steady income with these 15 dividend stocks with yields > 3% that stand out for robust returns and reliable payouts.
• Get ahead of the artificial intelligence revolution by seeking out these 26 AI penny stocks poised for explosive growth as AI technology transforms every industry.
• Ride the blockchain wave and access new financial frontiers by acting on these 81 cryptocurrency and blockchain stocks powering innovation in digital transactions and decentralized platforms.

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