Never miss an important update on your stock portfolio and cut through the noise. Over 7 million investors trust Simply Wall St to stay informed where it matters for FREE.
Obayashi stock overview
Obayashi (TSE:1802) has drawn investor attention after a strong 1 year total return of 78.64%, set against a year to date gain of 11.23% and a past 3 months return of 2.53%.
See our latest analysis for Obayashi.
At a latest share price of ¥3,685.0, Obayashi's short term momentum has cooled, with its recent 1 month share price return softening. Its 1 year and multi year total shareholder returns remain very strong, which may indicate a shift in sentiment from rapid re rating to consolidation.
If you are weighing up Obayashi alongside other opportunities in infrastructure and construction related themes, it can be useful to see what else is moving in power and grid upgrades through the 31 power grid technology and infrastructure stocks
After a strong multi year run and with Obayashi trading at ¥3,685, some valuation models indicate a discount of around 20% to 30%. The key question is whether that suggests an opportunity or whether the market is already accounting for potential future growth.
Price-to-Earnings of 13.9x: Is it justified?
On a P/E of 13.9x, Obayashi trades at a higher earnings multiple than the JP Construction industry average of 12.3x, even after the recent share price cooling. For you as an investor, that means the market is attaching a somewhat richer price to each ¥ of Obayashi's earnings than to many domestic peers.
The P/E ratio compares the current share price with earnings per share and is a common way to see how much investors are willing to pay for current earnings. For a mature construction and civil engineering group like Obayashi, this can reflect expectations around the stability of its contract pipeline, the quality of its earnings and the breadth of its business mix across domestic building, civil engineering and overseas projects.
While Obayashi screens as expensive against the JP Construction average, it looks cheaper when stacked against the peer group average P/E of 18.4x. At the same time, the estimated fair P/E of 18.1x sits clearly above the current 13.9x. This indicates a sizeable gap between where the market prices the stock today and where valuation work implies the multiple could move over time if assumptions hold.
Explore the SWS fair ratio for Obayashi
Result: Price-to-Earnings of 13.9x (UNDERVALUED)
However, potential setbacks in construction demand, or weaker profitability in core building and civil engineering segments, could quickly challenge the current valuation gap story.
Find out about the key risks to this Obayashi narrative.
Another view: DCF points to a larger gap
While the P/E suggests Obayashi looks inexpensive against peers, the SWS DCF model goes further. At ¥3,685, the share price sits around 28% below an estimated future cash flow value of ¥5,102.61. That is a much wider gap. Which signal should carry more weight for you?
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 Obayashi 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 17 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
All of this paints a mixed picture, so the best next step is to look at the details yourself, weigh the trade offs, and see how the balance of opportunity and concern sits for you: 3 key rewards and 2 important warning signs
Looking for more investment ideas?
If Obayashi has caught your attention, do not stop there. Use the wider stock universe to benchmark ideas and spot opportunities that fit your own approach.
-
Target potential upside in overlooked names by scanning screener containing 58 high quality undiscovered gems that combine strong fundamentals with limited market attention.
-
Prioritise resilience by reviewing 51 resilient stocks with low risk scores that score well on balance sheet strength and risk measures.
-
Focus on proven income streams with 29 dividend fortresses offering yields above 5% and an emphasis on consistency.
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 1802.T .
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
