TOTO (TSE:5332): Assessing Valuation After a Solid Recent Share Price Rebound

TOTO (TSE:5332) has quietly put together a solid run, with the stock gaining around 12% over the past month and 16% year to date, as investors reassess its earnings momentum.

See our latest analysis for TOTO.

That recent 11.9% one month share price return looks like investors are warming back up to TOTO, even though the five year total shareholder return is still negative. This suggests this latest momentum may be a reset rather than a full rerating.

If TOTO has put the plumbing trade on your radar, it could be a good moment to broaden your search and explore fast growing stocks with high insider ownership for more ideas.

With earnings growth improving but the share price now hovering around analyst targets and trading at a premium to some intrinsic value estimates, is TOTO an overlooked value opportunity, or has the market already baked in its next leg of growth?

Price-to-Sales of 1x: Is it justified?

On a price of ¥4,323, TOTO trades at roughly 1x sales, which screens as expensive versus building peers and sector averages.

The price to sales multiple compares the company’s market value to its annual revenue, a useful lens for businesses where earnings can be volatile or distorted by one off items. For a mature, capital intensive plumbing and building products group like TOTO, it signals how much investors are willing to pay today for each yen of current sales.

Right now, that 1x multiple sits above both the Japanese building industry average of 0.5x and a peer average of 0.9x, implying the market is attaching a premium despite recent profit margin compression and weak historical earnings trends. However, regression based fair value work suggests a “fair” price to sales closer to 1.6x, leaving open the possibility that, over time, the market could move toward a higher revenue multiple if forecast profit growth delivers.

Explore the SWS fair ratio for TOTO

Result: Price-to-sales of 1x (ABOUT RIGHT)

However, downside risks remain if margins fail to follow revenue higher, or if the share price’s small premium to analyst targets deters new buyers.

Find out about the key risks to this TOTO narrative.

Another Way to Look at Value

Our DCF model paints a harsher picture, suggesting fair value nearer ¥3,489, which would make TOTO meaningfully overvalued at ¥4,323 despite the seemingly reasonable 1x sales tag. Are investors paying up early for the forecast earnings rebound, or overpaying for hope?

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 TOTO 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 908 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 TOTO Narrative

If you see the story differently or want to stress test the assumptions with your own research, you can build a custom view in under three minutes: Do it your way.

A great starting point for your TOTO 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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