Tokyo Gas (TSE:9531): Valuation Insights Following Major LNG Supply Agreement with Alaska Project

Tokyo Gas Ltd (TSE:9531) has signed a Letter of Intent with Glenfarne Alaska LNG, LLC to secure one million tonnes per year of LNG from the Alaska LNG project. This move highlights Tokyo Gas's ongoing strategy to strengthen its access to reliable global energy supplies.

See our latest analysis for Tokyo GasLtd.

Tokyo GasLtd shares have been on a strong run lately, notching a year-to-date share price return of nearly 23% and an impressive 68.7% total return over the past year. Momentum has clearly been building, with the LNG supply deal providing additional confidence to the growth story.

If Tokyo GasLtd's global energy pivot has sparked your curiosity, it's a great moment to broaden your view and check out fast growing stocks with high insider ownership.

With Tokyo Gas Ltd’s shares hitting new highs and investor optimism running strong, the key question now is whether the stock remains undervalued or if the market has already priced in all of the company’s future growth potential.

Price-to-Earnings of 11.9x: Is it justified?

Tokyo GasLtd currently trades at a price-to-earnings (P/E) ratio of 11.9x, noticeably below both its industry peers and the broader Japanese market. This suggests the stock may offer better value at its last close price of ¥5,390.

The price-to-earnings ratio measures how much investors are willing to pay for each yen of earnings the company generates. In the utilities sector, the P/E can indicate how highly the market values stable, mature earnings streams or future growth opportunities. A lower P/E could mean that the stock is underappreciated relative to its earnings capacity, or that the market has concerns about growth ahead.

Looking at peers and industry benchmarks, Tokyo GasLtd’s P/E is below the Asian Gas Utilities industry average of 13.5x and the peer average of 15.1x. However, compared to its estimated Fair Price-to-Earnings Ratio of 7.8x, the current P/E is still relatively high. This may indicate the market is pricing in optimism that exceeds typical regression-based fair value levels for the sector.

Explore the SWS fair ratio for Tokyo GasLtd

Result: Price-to-Earnings of 11.9x (UNDERVALUED compared to peers, but ABOVE estimated fair value)

However, slowing revenue growth and declining net income may challenge Tokyo GasLtd’s bullish momentum if these trends persist or worsen in the near term.

Find out about the key risks to this Tokyo GasLtd narrative.

Another View: Discounted Cash Flow Tells a Different Story

Looking at Tokyo GasLtd through the SWS DCF model offers a different perspective. In this case, the estimated fair value lands at ¥5,383, just below the current share price of ¥5,390. This suggests the stock may be slightly overvalued right now. So, which method gives the truer picture for investors?

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 Tokyo GasLtd 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 Tokyo GasLtd Narrative

If you see the story differently or want to dive deeper into the numbers, building your own perspective is both simple and fast. Most readers can create theirs in under three minutes. Do it your way

A great starting point for your Tokyo GasLtd research is our analysis highlighting 2 key rewards and 2 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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