What Does Tokyo Electron Limited's (TSE:8035) Share Price Indicate?

Today we're going to take a look at the well-established Tokyo Electron Limited (TSE:8035). The company's stock received a lot of attention from a substantial price movement on the TSE over the last few months, increasing to JP¥39,620 at one point, and dropping to the lows of JP¥32,450. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Tokyo Electron's current trading price of JP¥33,630 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Tokyo Electron’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Tokyo Electron

Is Tokyo Electron Still Cheap?

According to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Tokyo Electron’s ratio of 42.78x is above its peer average of 21.23x, which suggests the stock is trading at a higher price compared to the Semiconductor industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Tokyo Electron’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Tokyo Electron?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 97% over the next couple of years, the future seems bright for Tokyo Electron. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in 8035’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe 8035 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 8035 for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for 8035, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 1 warning sign with Tokyo Electron, and understanding this should be part of your investment process.

If you are no longer interested in Tokyo Electron, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.