Sanrio (TSE:8136) Valuation in Focus Following Major ¥15 Billion Share Buyback Announcement

Sanrio Company (TSE:8136) has unveiled a new share repurchase program, planning to buy back 3.3 million shares, or 1.35% of its share capital, for ¥15,000 million. This move is intended to enhance capital efficiency and flexibility in the company’s financial strategy.

See our latest analysis for Sanrio Company.

Hot on the heels of its bold buyback announcement, Sanrio's share price has seen dramatic swings lately, rallying 5.34% in a single day but suffering a 26% decline over the past month. That said, total shareholder returns of 14% over the past year and a stunning 285% three-year gain highlight real long-term value creation, even as short-term volatility grabs headlines.

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With shares still well below analyst targets and strong multi-year gains on record, the big question now is whether Sanrio remains undervalued at today’s levels or if the market has already accounted for its future growth potential.

Price-to-Earnings of 27x: Is it justified?

Sanrio is currently trading at a price-to-earnings (P/E) ratio of 27x, based on its last close of ¥5,522. This level is notably higher than both the industry and peer averages, raising important questions about whether the market is pricing in ambitious earnings expectations.

The price-to-earnings ratio measures how much investors are willing to pay today for a company's earnings. It is a useful tool for comparing profitability and growth prospects across companies. For Sanrio, a premium P/E such as 27x suggests the market expects outsized earnings growth, sustained profit margins, or unique business strengths that set it apart from peers in the specialty retail sector.

Looking at the sector, the JP Specialty Retail industry average P/E stands at 13.6x, while the peer average is even lower at 16.8x. Sanrio's P/E of 27x is almost double these benchmarks. However, when compared to the estimated Fair Price-to-Earnings Ratio of 27.3x, Sanrio's current valuation looks closely aligned with what quantitative models suggest the market could eventually reach. This signals that recent growth and margin improvements are being recognized by investors.

Explore the SWS fair ratio for Sanrio Company

Result: Price-to-Earnings of 27x (ABOUT RIGHT)

However, slowing 12-month returns and recent bouts of steep volatility suggest that market sentiment could rapidly shift if earnings momentum loses steam.

Find out about the key risks to this Sanrio Company narrative.

Another View: What About Intrinsic Value?

Looking at Sanrio through the lens of our DCF model, the picture shifts. The shares are trading at ¥5,522, which is about 3% below our fair value estimate of ¥5,698.95. While not a massive discount, it suggests shares could still hold modest upside if future cash flows live up to forecasts. Which method do you trust more at this stage?

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 Sanrio 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 918 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 Sanrio Company Narrative

If you'd like to dig into the numbers yourself or have a different take, you can quickly craft your own perspective in just a few minutes. So why not Do it your way

A great starting point for your Sanrio Company research is our analysis highlighting 4 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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