Odakyu Electric Railway (TSE:9007): Assessing Valuation Following Dividend Hike and Upbeat Earnings Guidance

Odakyu Electric Railway (TSE:9007) just released new earnings guidance and raised its second quarter dividend to JPY 25 per share, up from JPY 15 last year. This move underscores a commitment to rewarding shareholders.

See our latest analysis for Odakyu Electric Railway.

Odakyu Electric Railway’s latest earnings guidance and stronger dividend seem to have energized sentiment, as shown by a 22.05% year-to-date share price return and a healthy 17.9% total shareholder return over the past year. Recent management moves, including renovations and a focus on expanding non-commuter revenues, suggest momentum could be building. This makes it a stock worth watching as confidence in its long-term story improves.

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With this upbeat guidance and a jump in dividends, does Odakyu Electric Railway still trade at an attractive price, or is the market already anticipating the company's future growth story? Could there be more upside ahead for investors?

Price-to-Earnings of 14.6x: Is it justified?

Odakyu Electric Railway is currently trading at a price-to-earnings (P/E) ratio of 14.6, noticeably higher than both its industry peers and what is suggested by fair value estimates. With the last close at ¥1,774, this multiple points to a premium being placed on the company’s shares compared to the JP Transportation industry.

The price-to-earnings ratio is a widely followed metric that compares the market price of a stock to its earnings per share. For a transportation company like Odakyu, the P/E ratio can reflect expectations of stable or growing earnings as well as confidence in profit sustainability and sector growth prospects.

In this case, Odakyu’s P/E of 14.6x stands above the industry average of 11.6x and also surpasses the peer average of 11x. Additionally, when compared with the estimated fair P/E ratio of 14.3x, the shares still appear slightly stretched. This could mean that the market is factoring in optimistic growth or recovery expectations. If sentiment changes or financial performance lags, valuations could adjust toward the fair multiple level.

Explore the SWS fair ratio for Odakyu Electric Railway

Result: Price-to-Earnings of 14.6x (OVERVALUED)

However, a slowdown in revenue or earnings momentum, or shifts in market sentiment, could quickly affect Odakyu Electric Railway’s current valuation.

Find out about the key risks to this Odakyu Electric Railway narrative.

Another View: SWS DCF Model Shows a Starkly Different Picture

Looking at Odakyu Electric Railway through the lens of our DCF model presents a fresh angle. Here, the shares trade well above the estimated fair value of ¥949.25. This suggests that, despite a higher price-to-earnings ratio, Odakyu could actually be overvalued on a cash flow basis. Does this mean the market is simply too optimistic about its future?

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 Odakyu Electric Railway 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 918 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 Odakyu Electric Railway Narrative

If you want to dig deeper or have a different perspective on Odakyu Electric Railway, you can craft your own analysis and outlook in just a few minutes. Do it your way

A great starting point for your Odakyu Electric Railway research is our analysis highlighting 1 key reward 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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