Oki Electric Industry (TSE:6703) Following Its First Overseas Defense Deal Is This A Bargain

Oki Electric Industry (TSE:6703) has drawn fresh attention after signing a supply contract with Mitsubishi Heavy Industries to provide towed passive sonar systems for Australia’s new general-purpose frigates, marking the company’s first overseas transfer of defense equipment.

See our latest analysis for Oki Electric Industry.

Against this backdrop, Oki Electric Industry’s share price has recently come under pressure, with the 7 day share price return down 17.91% and the 30 day share price return down 19.47%. At the same time, the year to date share price return is 34.41% and the 1 year total shareholder return is 76.81%, suggesting strong longer term momentum despite the recent pullback.

If this defense contract has you thinking more broadly about where growth and resilience could come from next, it may be worth scanning 35 power grid technology and infrastructure stocks

After a sharp pullback following the sonar contract news, the question for Oki Electric Industry at ¥2,750 is whether the stronger long term return story still offers meaningful upside or if most of the rerating is already in the rear view.

Preferred P/E of 9.3x on Oki Electric Industry: Is it justified?

Based on the numbers provided, Oki Electric Industry trades on a P/E of 9.3x, which appears inexpensive compared to both peers and the wider JP Electronic industry.

The P/E multiple compares the current share price with earnings per share. For a company like Oki Electric Industry that is profitable and operating across telecommunications, information systems and electronics, it gives a quick sense of how much investors are paying for each unit of current earnings.

Here, the stock is flagged as good value versus direct peers with an average P/E of 15.9x and also versus the JP Electronic industry average of 15.5x. The same data points to a reference P/E of about 17.6x. That is a large gap. If the market were to price Oki Electric Industry nearer that reference ratio, any re-rating would occur through a higher multiple rather than through changes in earnings alone.

Explore the SWS fair ratio for Oki Electric Industry

Result: Price-to-earnings of 9.3x (UNDERVALUED)

However, Oki Electric Industry still faces risks if the defense contract pipeline stalls or if recent share price volatility begins to weigh on investor confidence.

Find out about the key risks to this Oki Electric Industry narrative.

Another view on Oki Electric Industry’s valuation

While the P/E of 9.3x paints Oki Electric Industry as inexpensive next to peers, the SWS DCF model points to a different reference point. It estimates a future cash flow value of ¥6,826.61 per share versus the current ¥2,750, which also suggests the stock is undervalued. The question is how confident you feel about those cash flow assumptions.

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 Oki Electric Industry 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 19 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Given the mix of caution and optimism around Oki Electric Industry, it makes sense to move quickly and test the numbers yourself before sentiment shifts. You can explore both perspectives by reviewing the 4 key rewards and 3 important warning signs

Looking for more investment ideas beyond Oki Electric Industry?

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• Target dependable cash generators by reviewing companies with strong fundamentals and balance sheets using the solid balance sheet and fundamentals stocks screener (39 results).
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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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