Is Tokyo Plast Intl overvalued or undervalued?

Understanding Tokyo Plast Intl’s Valuation Metrics

Tokyo Plast Intl currently trades at a price of ₹115.00, down from its previous close of ₹120.55. The stock’s 52-week range spans from ₹107.55 to ₹161.40, indicating significant volatility over the past year. The company’s price-to-earnings (PE) ratio stands at 85.36, which is notably high and often interpreted as overvaluation. However, this figure alone does not provide a complete picture.

Other valuation multiples offer a more nuanced view. The price-to-book value is 1.75, suggesting the stock is trading at less than twice its net asset value, which is moderate for the diversified consumer products sector. The enterprise value to EBITDA ratio is 20.01, which, while elevated, is lower than many peers in the industry. For instance, competitors such as Astral and Shaily Engineering have EV/EBITDA ratios exceeding 39 and 48 respectively, indicating Tokyo Plast Intl is relatively cheaper on this front.

Additionally, the PEG ratio of 1.62 indicates that the stock’s price is somewhat aligned with its earnings growth prospects, making it more reasonable compared to peers with either very high or zero PEG ratios. The absence of a dividend yield may deter income-focused investors, but this is not uncommon in growth-oriented companies reinvesting earnings.

Comparative Analysis with Industry Peers

When compared to its peers, Tokyo Plast Intl’s valuation appears attractive. Several competitors in the diversified consumer products sector are classified as very expensive, with PE ratios ranging from approximately 50 to over 80 and EV/EBITDA multiples well above 30. For example, Supreme Industries and Safari Industries trade at significantly higher multiples, reflecting either stronger growth expectations or market overvaluation.

In contrast, Tokyo Plast Intl’s EV/EBITDA of 20.01 is more moderate, and its PEG ratio is within a reasonable range, suggesting the market may be undervaluing its growth potential relative to these peers. Companies like Time Technoplast and EPL Ltd, also rated attractive, trade at much lower PE and EV/EBITDA multiples, but their growth profiles and market positions differ, making direct comparisons imperfect.

Financial Performance and Returns

Tokyo Plast Intl’s return on capital employed (ROCE) is 4.29%, and return on equity (ROE) is 2.05%, both of which are modest and indicate limited profitability relative to invested capital. These figures may explain the cautious market sentiment and the stock’s recent price decline.

The stock’s recent performance has lagged behind the broader Sensex index. Over the past year, Tokyo Plast Intl has delivered a negative return of approximately 10.1%, while the Sensex gained over 6%. Year-to-date, the stock is down by 12%, contrasting with the Sensex’s near 9% gain. Longer-term returns over five and ten years show positive growth but still trail the benchmark significantly.

Is Tokyo Plast Intl Overvalued or Undervalued?

Despite a high PE ratio, Tokyo Plast Intl’s valuation grade has recently improved from fair to attractive, reflecting a reassessment of its relative value. The company’s valuation multiples, particularly EV/EBITDA and PEG ratio, are more reasonable compared to many of its industry peers, some of which are trading at significantly higher multiples without commensurate growth or profitability.

However, the company’s modest profitability metrics and underperformance relative to the Sensex suggest caution. The stock’s current price is closer to its 52-week low than its high, indicating market scepticism. For value-oriented investors, this could represent an opportunity to acquire shares at a discount to peers, especially if operational improvements or earnings growth materialise.

In summary, Tokyo Plast Intl appears undervalued relative to its sector peers when considering enterprise multiples and growth-adjusted metrics. Yet, its weak returns on capital and recent price underperformance warrant careful monitoring. Investors should weigh these factors alongside broader market conditions and company-specific developments before making investment decisions.

Limited Time Only! Subscribe for Rs. 12,999 and get 1 Year of MojoOne + an Additional Year Completely FREE. Don't miss out on this exclusive offer. Claim Your Free Year →