Kaga Electronics (TSE:8154): Examining Valuation After Strong Earnings Forecast Revision and Business Momentum

Kaga Electronics Ltd (TSE:8154) raised its earnings forecast for the year ending March 2026, citing stronger results in its electronic components and EMS businesses, as well as ongoing demand in amusement equipment. Extra gains from securities sales also helped lift expectations.

See our latest analysis for Kaga ElectronicsLtd.

Kaga ElectronicsLtd has been on a noticeable run this year, with its share price closing at ¥3,485 and showing strong momentum, up 21.7% year-to-date. The company has also delivered an impressive 31.5% total shareholder return over the past year and a remarkable 304% over five years. This highlights both near-term optimism and a long-term record that continues to attract attention.

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But with the share price already soaring and earnings guidance raised, is Kaga Electronics still trading at a discount? Or is the stock’s recent strength a sign that the market has already priced in its growth potential?

Price-to-Earnings of 6.9x: Is it justified?

Kaga ElectronicsLtd trades at a price-to-earnings (P/E) ratio of 6.9x, with the last close price at ¥3,485. This is well below the peer average and industry benchmark, suggesting the shares are potentially undervalued on this metric.

The P/E ratio measures what investors are willing to pay for each yen of company earnings. In the electronics sector, this ratio helps show how the market values the business’s current and future profitability relative to its peers.

A P/E of 6.9x means the market is pricing Kaga ElectronicsLtd at a much lower level than similar companies, despite its outsized earnings growth in recent years. This may reflect either temporary factors boosting profits or skepticism over whether such growth is sustainable. It is notable that the company's P/E also comes in significantly under the estimated Fair Price-To-Earnings Ratio of 13.6x, indicating further room for the market to re-rate the stock upward if fundamentals hold.

Compared to the JP Electronic industry average P/E of 14x, Kaga ElectronicsLtd stands out as a value opportunity. If the market begins to recognize its consistent performance, there could be a substantial upward move towards the fair ratio benchmark.

Explore the SWS fair ratio for Kaga ElectronicsLtd

Result: Price-to-Earnings of 6.9x (UNDERVALUED)

However, slowing annual net income growth and a share price now above analyst targets could dampen sentiment and limit further upside in the near term.

Find out about the key risks to this Kaga ElectronicsLtd narrative.

Another View: Discounted Cash Flow (DCF) Perspective

Looking beyond earnings multiples, the SWS DCF model suggests an even greater disconnect between market price and intrinsic value. According to this approach, Kaga ElectronicsLtd is trading nearly 45% below its estimated fair value. This points to a significant undervaluation from this perspective. Could this calculation signal opportunity, or does it overlook risks that the market currently sees?

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 Kaga ElectronicsLtd 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 905 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 Kaga ElectronicsLtd Narrative

If you see things differently or would rather dig through the data yourself, you can build your own narrative for Kaga ElectronicsLtd in just a few minutes, and Do it your way.

A great starting point for your Kaga ElectronicsLtd research is our analysis highlighting 4 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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