Canon (TSE:7751): Assessing Valuation After Earnings Guidance Cut and Outlook for Year-End Sales

Canon (TSE:7751) caught investor attention after it lowered its earnings guidance for 2025, citing delays in business negotiations and tariff effects resulting from global uncertainty. However, the company expects stronger sales during the year-end season.

See our latest analysis for Canon.

Canon’s recent earnings guidance cut comes after a period of both challenge and resilience. Despite a bumpy start to the year, with the share price down 7.7% year-to-date, momentum has picked up in recent weeks as shown by a 13.8% 90-day share price return. Over the long haul, Canon’s three- and five-year total shareholder returns of 64.6% and 205% show the company’s strength, even as short-term uncertainty continues to shape expectations.

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With short-term headwinds reflected in recent guidance and a discounted share price, investors are left asking: Is Canon undervalued and poised for a rebound, or has the market already priced in its future growth?

Price-to-Earnings of 24.6x: Is it justified?

Canon’s shares trade at a price-to-earnings (P/E) ratio of 24.6x as of the last close at ¥4,652. This signals investors are paying a premium compared to industry peers and the broader market. While the stock appears expensive on this metric, the market’s judgment about the company’s future prospects and potential for recovery plays a role in this higher valuation.

The price-to-earnings ratio measures how much investors are willing to pay for each yen of Canon’s current earnings. In the tech sector, a higher P/E can reflect expectations of outsized growth or strong profitability, but it can also mean the market is optimistic about a rebound after short-term setbacks.

Canon’s 24.6x P/E is noticeably higher than the peer average of 15.7x and the Japan Tech industry’s 16.3x average. Compared to the estimated fair P/E of 23.2x, Canon’s ratio is still elevated. This implies that if investor sentiment softens or performance stalls, there is room for the valuation to reset toward the fair ratio level.

Explore the SWS fair ratio for Canon

Result: Price-to-Earnings of 24.6x (OVERVALUED)

However, slowing annual revenue growth and potential setbacks from global tariffs could quickly weaken the case for a rapid valuation rebound.

Find out about the key risks to this Canon narrative.

Another View: DCF Model Suggests Undervaluation

While the price-to-earnings analysis paints Canon as overvalued, our DCF model offers a different perspective. Based on projected future cash flows, Canon’s shares are currently trading nearly 29% below what the SWS DCF model estimates as fair value. This raises the question: has the market overlooked Canon’s long-term earning power?

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 Canon 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 Canon Narrative

If you have a different perspective or want to dig into the numbers yourself, you can easily craft your own narrative in just a few minutes. Do it your way

A great starting point for your Canon research is our analysis highlighting 2 key rewards and 3 important warning signs 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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