Yokogawa Electric (TSE:6841): Evaluating Valuation as Space Collaboration With Toyota Expands Tech Horizons

Yokogawa Electric (TSE:6841) has entered into strategic agreements with Toyota to collaborate on developing prototype measurement and control equipment for a manned lunar rover in partnership with the Japan Aerospace Exploration Agency. This step signals a push into the growing space technology sector.

See our latest analysis for Yokogawa Electric.

Yokogawa Electric’s collaboration with Toyota has added a fresh spark to investor sentiment, especially as the company continues to push into advanced technology sectors. While recent share price returns have been modest, with the latest close at ¥4,526, the standout figure is a one-year total shareholder return of 22%. This points to solid long-term momentum even as short-term moves remain more subdued.

If you’re interested in uncovering other companies at the intersection of aerospace and innovation, this is the perfect chance to explore See the full list for free.

Given Yokogawa Electric's impressive one-year return and its push into space exploration, is there untapped value here for investors? Or has the market already priced in the company's future growth prospects?

Price-to-Earnings of 20.1x: Is it justified?

Yokogawa Electric’s shares are trading at a price-to-earnings ratio of 20.1x, notably higher than many of its Japanese electronic peers. With the last close at ¥4,526, this premium signals that the market currently values Yokogawa’s earnings growth trajectory above industry and peer averages.

The price-to-earnings (P/E) ratio reflects how much investors are willing to pay for each yen of current earnings, and it is widely used to benchmark companies in the technology and electronics sector. A higher P/E can indicate expectations of stronger future growth, but it may also suggest that the stock’s earnings potential is already priced in.

Yokogawa's P/E of 20.1x stands well above both the Japanese electronic industry average (14.4x) and the peer group average (17.9x). In comparison to the estimated fair P/E ratio of 17.6x, the current valuation looks elevated, which could set the stage for future re-pricing if growth expectations are not met.

Explore the SWS fair ratio for Yokogawa Electric

Result: Price-to-Earnings of 20.1x (OVERVALUED)

However, weaker-than-expected revenue growth or a delay in the space collaboration could challenge the current optimism surrounding Yokogawa Electric’s valuation.

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

Another View: Discounted Cash Flow Weighs In

While the market currently pays a premium for Yokogawa Electric shares, our DCF model presents a different perspective. According to this approach, the stock’s current price is above its estimated fair value. Could this suggest the market is running ahead of underlying 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 Yokogawa Electric 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 Yokogawa Electric Narrative

If you have a different perspective or want to dive into the numbers on your own, you can craft your own view in just a few minutes with Do it your way.

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

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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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