Chiyoda (TSE:6366) Has Strong Long Term Returns, Is The Stock Still A Bargain?

Recent Share Performance and Context for Chiyoda

Chiyoda (TSE:6366) has seen mixed share performance recently, with the stock down about 0.7% on the latest trading day but higher over the past week, month, and past 3 months.

See our latest analysis for Chiyoda.

At a share price of ¥715.0, Chiyoda has lately combined a softer 1-day share price return with stronger recent momentum over the past month. At the same time, the 1-year total shareholder return of 92.20% and multi-year total shareholder returns above 90% highlight how sentiment around the stock has shifted over time, hinting at changing expectations for both growth potential and risk.

If you are comparing Chiyoda with other industrial and infrastructure focused opportunities, this is a good moment to scan the 39 power grid technology and infrastructure stocks.

Chiyoda’s long term shareholder returns look strong, even after the recent share pullback. The real question is whether those expectations are already fully baked into today’s ¥715 price as the valuation work starts next.

Price-to-Earnings of 2.3x for Chiyoda: Is it justified?

On a simple earnings lens, Chiyoda trades on a P/E of 2.3x, which sits well below both its estimated fair P/E and the wider Japan construction space.

The P/E ratio compares the current share price with earnings per share. For a company like Chiyoda, which is currently profitable and has reported high quality earnings, this metric helps you see how much the market is paying for each unit of current profit.

Chiyoda’s P/E of 2.3x is described as good value versus the estimated fair P/E of 4.5x. That suggests the current price implies a lower earnings multiple than the level our fair value work indicates the stock could be priced at if the market moved closer to those fundamentals.

The discount looks even starker when set against the Japan construction industry average P/E of 11x and a similar 11x for peers. Compared with both the sector and the estimated fair P/E, Chiyoda’s 2.3x multiple points to a materially lower valuation being placed on its earnings today.

Explore the SWS fair ratio for Chiyoda

Result: Price-to-Earnings of 2.3x (UNDERVALUED)

However, you also need to weigh risks for Chiyoda, including annual revenue and net income declines, as well as the possibility that current margins and contracts face pressure.

Find out about the key risks to this Chiyoda narrative.

Another View on Chiyoda Using Our DCF Model

There is a second lens you can use on Chiyoda. Our DCF model estimates a future cash flow value of ¥1,412.52 per share, compared with the current ¥715 price. That suggests the stock may be trading at a sizeable discount, although future earnings and revenue are forecast to decline. How comfortable are you with that trade off?

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 Chiyoda 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 27 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 positives and concerns around Chiyoda, this is a good moment to review the data yourself and decide how the risk and reward balance looks for your portfolio. To weigh both sides in one place, take a closer look at the 3 key rewards and 2 important warning signs.

Looking for more investment ideas beyond Chiyoda?

If Chiyoda has caught your attention, do not stop there. Use the Simply Wall St screener to uncover other stocks that could strengthen your overall portfolio mix.

• Target potential mispricings by scanning companies that look cheaper than their fundamentals suggest through the 27 high quality undervalued stocks.
• Prioritise resilience by reviewing the 60 resilient stocks with low risk scores and focus on businesses that score well on risk metrics.
• Hunt for lesser known opportunities with solid fundamentals using the screener containing 68 high quality undiscovered gems.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com