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DENSO (TSE:6902) is committing US$69 million to a new 280,000 square foot logistics center in Lebanon, Tennessee, a project aimed at supporting North American operations and retaining 100 local jobs.
See our latest analysis for DENSO.
The Tennessee logistics investment arrives at a time when DENSO’s share price performance has been mixed, with a 30 day share price return of 2.34%, a 90 day share price return of 4.51%, and a 1 year total shareholder return of 5.30%. This still reflects a stronger 3 and 5 year total shareholder return record and suggests that longer term momentum has been more resilient than the recent pullback.
If this kind of operational expansion has your attention, it could be a good moment to size up other auto names through our screen of auto manufacturers.
With the stock trading at ¥2,210.5, an implied 27.62% discount to one intrinsic estimate and a 9.39% gap to analyst targets, the key question is whether DENSO is undervalued or if the market already prices in future growth.
Right now DENSO trades on a P/E of 16.5x, which puts it slightly above both its peer average of 16.3x and the SWS fair P/E estimate of 16.2x.
The P/E ratio compares the current share price to earnings and is a quick way of seeing how much you are paying for each unit of profit. For a large auto components group like DENSO, this is a common yardstick investors use when they compare it with other names in the same space.
At 16.5x earnings, the stock sits close to the level SWS modelling suggests the P/E could gravitate toward. It is still described as expensive versus that fair P/E. Against the wider JP Auto Components industry, where the average P/E stands at 11.4x, the premium looks clearer and implies the market is paying more for DENSO’s earnings than for the sector overall.
Relative to domestic peers, DENSO’s P/E is also described as expensive against the peer average of 16.3x. This reinforces the picture of a stock priced at the higher end of its group rather than at a discount.
Explore the SWS fair ratio for DENSO
Result: Price-to-Earnings of 16.5x (OVERVALUED)
However, recent 7 day and 90 day share price declines, along with DENSO’s relatively high P/E, could both challenge the idea that the stock is mispriced.
Find out about the key risks to this DENSO narrative.
While the current 16.5x P/E suggests DENSO is priced at the higher end of its peer group, the SWS DCF model points in a different direction. With the share price at ¥2,210.5 versus a DCF value of ¥3,053.84, the model indicates the shares may be undervalued. If the cash flow view is accurate and the earnings multiple remains elevated, which signal would you lean 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 DENSO 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 872 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.
If you see the numbers differently or prefer to dig into the details yourself, you can create your own take in minutes with Do it your way.
A great starting point for your DENSO research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.
If DENSO has sharpened your thinking, do not stop with one company. Use the data rich Simply Wall St Screener to quickly surface other opportunities that fit your style.
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.
Companies discussed in this article include 6902.T.
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