Yokogawa Electric (TSE:6841): Assessing Valuation Following Strategic Partnership With Toyota for Lunar Rover Project

If you have been wondering what could spark a fresh wave of attention for Yokogawa Electric (TSE:6841), the answer landed this week with the company’s announcement of a strategic partnership with Toyota. Yokogawa will participate in a joint R&D project for the “Lunar Cruiser,” a manned pressurized rover being developed for Japan’s ambitious lunar exploration initiatives. For investors, this signals not just a fascinating technological leap but also hints at possible growth avenues beyond Yokogawa’s traditional industrial stronghold.

This new collaboration arrives at a time when momentum appears to be building for Yokogawa Electric’s shares. Following a period of measured gains, the stock has climbed 19% over the past year, with a substantial 27% return from the start of the year. Other recent highlights include the company’s presentations at international conferences, reflecting its broader push into biotech and advanced sectors. Long-term performance has also been strong; returns over the past three and five years suggest sustained shareholder value creation, while annual growth in both revenue and earnings gently reassures on fundamentals.

But does the excitement around lunar projects mean Yokogawa Electric’s shares are now priced for liftoff, or is there still an opportunity for buyers before the market fully embraces this new growth potential?

Price-to-Earnings of 19.2x: Is it justified?

Based on its preferred multiple, Yokogawa Electric appears overvalued compared to its industry peers. The stock is trading at a Price-to-Earnings (P/E) ratio of 19.2x, which is above both the Japanese electronics industry average of 14.8x and the estimated fair P/E of 17.3x.

The Price-to-Earnings ratio indicates how much investors are willing to pay for each yen of the company's earnings. In the tech and electronics sector, this ratio is a widely followed metric for gauging investor expectations around future profitability and growth prospects.

Yokogawa’s premium P/E suggests investors are pricing in higher growth or superior business quality relative to peers. However, given current growth forecasts, the market may be overestimating its upside and paying above the sector norm for projected earnings.

Result: Fair Value of ¥3,946.46 (OVERVALUED)

See our latest analysis for Yokogawa Electric.

However, slower-than-expected earnings growth or a cooling in sector sentiment could challenge bullish expectations and have an impact on Yokogawa Electric’s share price momentum.

Find out about the key risks to this Yokogawa Electric narrative.

Another View: SWS DCF Model Takes the Stage

Looking at things from a different angle, our SWS DCF model also points to an overvalued status for Yokogawa Electric. This alternative approach draws from future cash flows rather than earnings ratios alone. Will the market continue to lean toward optimism, or are expectations set for a realignment soon?

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

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

Build Your Own Yokogawa Electric Narrative

If you have a different take or prefer to follow your own insights, you can shape your own perspective on Yokogawa Electric in just a few minutes. Do it your way

A good starting point is our analysis highlighting 2 key rewards investors are optimistic about regarding Yokogawa Electric.

Looking for more investing opportunities?

Smart investors never stand still. The right screener can unlock trends, sectors, and hidden gems you might otherwise miss out on. Get ahead and broaden your watchlist today.

• Capitalize on emerging trends in automation and healthcare by using healthcare AI stocks to spot companies transforming patient outcomes with advanced AI diagnostics.
• Generate steady passive income when you use dividend stocks with yields > 3% to filter for companies offering yields above 3% backed by resilient financials.
• Ride the momentum of this year’s market movers in technology and growth with AI penny stocks and pinpoint penny stocks at the forefront of AI innovation.

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