A Look at Ferrotec (TSE:6890) Valuation After Affiliate's Capital Raise for Growth

Ferrotec (TSE:6890) recently announced that its affiliate in the semiconductor wafer sector has completed a third-party allotment capital increase. This move immediately strengthens the affiliate’s financial position and could set the stage for expanded operational capacity.

See our latest analysis for Ferrotec.

Ferrotec’s momentum has clearly accelerated over the past year, with a stellar 87% year-to-date share price return and a remarkable 1-year total shareholder return of 96%. This latest capital move follows a series of upbeat announcements and reinforces a long-term trend of significant outperformance, as seen in the company’s 5-year total shareholder return of nearly 462%.

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But with shares hovering near recent highs and already delivering massive returns this year, the key question is whether Ferrotec still has room to run, or if the market is already factoring in all the future growth.

Price-to-Earnings of 16.6x: Is it justified?

Ferrotec is trading at a price-to-earnings ratio of 16.6x based on the last close price of ¥4800, which is lower than both its peer average and the broader industry.

The price-to-earnings (P/E) ratio measures how much investors are willing to pay for each yen of earnings. For semiconductor companies, it is a key indicator of market expectations for profitability and growth.

This P/E is notably below the peer average of 23.3x and the JP Semiconductor industry average of 18.7x. This suggests Ferrotec is trading at a discount to comparable companies. In addition, the estimated fair price-to-earnings ratio stands at 20.5x, a level the market could potentially look to converge toward if company forecasts play out as expected.

Explore the SWS fair ratio for Ferrotec

Result: Price-to-Earnings of 16.6x (UNDERVALUED)

However, slowing revenue growth or a lack of further margin expansion could challenge the current valuation and investor expectations in the months ahead.

Find out about the key risks to this Ferrotec narrative.

Another View: What Does the SWS DCF Model Say?

Looking at our DCF model, a different story emerges. The model suggests Ferrotec’s fair value is much lower than its recent share price. This indicates the stock may be overvalued if future cash flows do not accelerate. Does this mean the market is running ahead of fundamentals?

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 Ferrotec 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 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 Ferrotec Narrative

If you want to dig deeper or reach different conclusions, you can easily design your own customized view of Ferrotec’s story in under three minutes. Do it your way

A great starting point for your Ferrotec 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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