A Look at Citizen Watch (TSE:7762) Valuation After Its Removal From the Nikkei 225 Index

Citizen Watch (TSE:7762) has been dropped from the Nikkei 225 Index, a change that often sparks activity from index-tracking funds and can shift how investors view the company’s market position.

See our latest analysis for Citizen Watch.

Citizen Watch’s recent removal from the Nikkei 225 came as its share price has quietly built impressive momentum, with a 24.8% gain over the past three months and a 1-year total shareholder return of 18.2%. Despite the index exit, the longer-term outlook remains robust. Five-year total returns stand at a remarkable 392%, signaling the company’s ability to outperform through major shifts in investor sentiment.

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The real question for investors is whether Citizen Watch’s stock price still lags behind its potential, or if the recent rally means markets have already priced in the company’s future growth trajectory. Is there still a buying opportunity?

Price-to-Earnings of 10.6x: Is it justified?

Citizen Watch’s shares trade on a price-to-earnings ratio (P/E) of 10.6x, making it look attractively valued compared to peers and industry benchmarks, especially given the latest close at ¥1068.

The P/E ratio is a yardstick for how much investors are willing to pay for each yen of current earnings. It is a key measure for established electronics companies with a long track record. For Citizen Watch, a relatively low P/E could mean the market is cautious about future profit growth or is overlooking recent business momentum.

Compared to the Japanese Electronic industry average P/E of 14.6x and the peer group average of 19.8x, Citizen Watch stands out as notably less expensive. In addition, the fair P/E ratio is estimated at 12.2x, indicating there may still be room for the market to re-rate the stock upwards.

Explore the SWS fair ratio for Citizen Watch

Result: Price-to-Earnings of 10.6x (UNDERVALUED)

However, slowing annual revenue growth and a recent decline in net income could challenge Citizen Watch’s momentum. This casts some uncertainty on future performance.

Find out about the key risks to this Citizen Watch narrative.

Another View: DCF Model Suggests Overvaluation

Switching perspectives, the SWS DCF model indicates Citizen Watch may actually be overvalued, with the current share price of ¥1068 sitting above the calculated fair value of ¥812.55. This challenges the low P/E argument and raises an important question: is the market looking beyond near-term 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 Citizen Watch 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 Citizen Watch Narrative

If you see things differently or want to dig into the numbers first-hand, you’re free to create your own view in just a few minutes using the following option: Do it your way

A great starting point for your Citizen Watch 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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