Assessing Toda (TSE:1860)’s Valuation After Its Recent Share Price Rebound

Toda (TSE:1860) has quietly delivered a sharp rebound, with the stock up around 9 % over the past month and 17 % in the past 3 months, outpacing many Japanese construction peers.

See our latest analysis for Toda.

Zooming out, Toda’s recent upswing sits on top of a solid year to date, with the share price up strongly in 2024 and a three year total shareholder return above 90 %, suggesting momentum and confidence are gradually building.

If this construction rebound has your attention, it could be a good moment to explore fast growing stocks with high insider ownership for other under the radar names with strong potential.

Yet despite that momentum, analysts now see limited upside and intrinsic models flag overvaluation. This raises a key question for investors: is Toda trading below its true potential, or is the market already pricing in its future growth?

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

On a price to earnings basis, Toda trades at 11.9x earnings, slightly below the wider Japanese market and close to construction sector norms.

The price to earnings ratio compares the company’s current share price with its per share earnings, giving a snapshot of how much investors pay for each unit of profit. For a mature construction and civil engineering group like Toda, it is a primary yardstick because earnings can be tracked across cycles and compared directly with peers.

Today’s 11.9x multiple looks modest beside the broader JP market at 14.2x and below the peer average of 16.3x, hinting that the market is not paying a premium for Toda’s earnings power. However, this sits just above the estimated fair price to earnings ratio of 11.8x and comes against a backdrop where earnings are forecast to decline by around the mid single digits annually, and our SWS DCF model flags the shares as trading well above an intrinsic value estimate of ¥702.98.

Relative to the construction industry, Toda screens as good value on simple comparisons, with a lower multiple than both the sector and direct peers. Yet when set against the fair price to earnings level that fundamentals could justify and the weaker earnings outlook, the discount narrows sharply and suggests the market may already be leaning toward the upper end of what those profits deserve to trade at.

Explore the SWS fair ratio for Toda

Result: Price-to-Earnings of 11.9x (ABOUT RIGHT)

However, softer earnings trends and a share price already above analyst targets could quickly reverse sentiment if project pipelines or margins disappoint.

Find out about the key risks to this Toda narrative.

Another View: DCF Flags Clear Overvaluation

While the price to earnings ratio makes Toda look reasonably priced, our SWS DCF model paints a tougher picture, with fair value estimated at ¥702.98 versus the current ¥1,222.5. That gap implies meaningful downside risk if cash flows disappoint. This raises an important question: which signal should investors focus on?

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 Toda 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 915 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 Toda Narrative

If you see the story differently, or would rather dig into the numbers yourself, you can build a custom view in just minutes with Do it your way.

A great starting point for your Toda research is our analysis highlighting 2 key rewards and 4 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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