JTEKT (TSE:6473) has caught the eye of investors following its very strong performance over the past month, with the stock up 7%. This run comes as the company’s fundamentals remain solid.
See our latest analysis for JTEKT.
This recent surge follows a broader upswing for JTEKT, as the company’s share price has gained 33% so far this year. The one-year total shareholder return stands at an impressive 53%. Momentum appears to be building, suggesting rising optimism around JTEKT’s growth prospects and underlying value.
If JTEKT’s pace has you curious about what else is making moves in the auto space, broaden your watchlist and discover See the full list for free.
But with JTEKT’s strong rally and impressive returns, the key question now is whether there is still room for upside or if recent gains mean the market has already priced in its future growth.
JTEKT is currently trading at a price-to-earnings (P/E) ratio of 25.1x, notably higher than both its industry peers and the broader market. The last close price was ¥1,549.5, which points towards a richer valuation than what is typical for similar companies in the auto components sector.
The price-to-earnings ratio reflects how much investors are willing to pay for each yen of earnings generated by the company. For auto sector firms, this multiple can highlight expectations around future growth, profitability, and risk profile. In JTEKT’s case, the elevated multiple suggests the market is pricing in strong anticipated earnings growth or rewarding the company for drivers possibly not yet reflected in its reported numbers.
Yet, when stacked directly against the peer group average of 13.6x and the Japanese auto components industry average of 11.6x, JTEKT appears significantly more expensive. However, the fair price-to-earnings ratio for JTEKT is estimated to be 26x. This hints that the current valuation is not significantly out of line with what the market may ultimately settle at over time.
Explore the SWS fair ratio for JTEKT
Result: Price-to-Earnings of 25.1x (OVERVALUED)
However, weaker revenue growth or a slowdown in net income gains could challenge the current investor optimism and affect JTEKT’s premium valuation outlook.
Find out about the key risks to this JTEKT narrative.
While JTEKT’s price-to-earnings ratio seems high, our DCF model tells a different story. According to this method, shares are trading nearly 70% below their estimated fair value. This suggests the market may be missing something significant or pricing in risk. Which side should investors trust?