Square Enix (TSE:9684): Assessing an Expensive Valuation After Strong 1-Year Share Price Gains

Square Enix Holdings (TSE:9684) has quietly given back some recent gains, with the stock down around 5% over the past month even as its longer term returns remain strong for patient investors.

See our latest analysis for Square Enix Holdings.

Despite the recent 4.8% 1 month share price pullback to ¥3,061, Square Enix still boasts a powerful year to date share price return of roughly 48% and a 1 year total shareholder return of about 56%. This suggests long term momentum remains intact even as near term enthusiasm cools slightly.

If Square Enix’s run has you rethinking where growth might come from next, it could be worth scanning fast growing stocks with high insider ownership for other under the radar names with aligned insiders.

With earnings still growing and the share price running well ahead of analyst targets, the key question now is simple: are investors overlooking more upside here, or has the market already priced in Square Enix’s next leg of growth?

Price-to-Earnings of 48.6x: Is it justified?

On a price-to-earnings ratio of 48.6x at the last close of ¥3,061, Square Enix screens as clearly more expensive than both its peers and the broader entertainment sector.

The price-to-earnings multiple compares what investors are paying today for each unit of current earnings. This can be a useful lens for a mature but still growing content and gaming business like Square Enix. At nearly 49 times earnings, the market is effectively pricing in meaningful profit expansion rather than treating the company as a steady state cash generator.

However, our data indicates that this enthusiasm goes well beyond sector norms. The stock trades on a price-to-earnings ratio of 48.6x, versus an estimated fair price-to-earnings ratio of 28.3x that our models suggest the market could ultimately gravitate toward. Against the Japan entertainment industry average multiple of 18.2x, and a peer group average of 27.1x, Square Enix’s valuation stands out as richly priced on current earnings power.

Explore the SWS fair ratio for Square Enix Holdings

Result: Price-to-Earnings of 48.6x (OVERVALUED)

However, investors should watch for slower revenue growth or a valuation reset if earnings momentum stalls, especially because shares are already trading above analyst targets.

Find out about the key risks to this Square Enix Holdings narrative.

Another View on Value

Our SWS DCF model paints an even starker picture, with a fair value estimate of roughly ¥1,322 per share compared to the current ¥3,061 price. That implies Square Enix could be significantly overvalued if cash flows normalise. Is the market banking on a new growth chapter that the model cannot yet see?

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 Square Enix Holdings 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 902 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 Square Enix Holdings Narrative

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

A great starting point for your Square Enix Holdings research is our analysis highlighting 2 key rewards and 1 important warning sign 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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