Sumitomo Mitsui Trust Group (TSE:8309) is moving to enter Vietnam’s asset management market through a new joint venture with Bank for Investment and Development of Vietnam, targeting investment funds and money management focused on domestic Vietnamese assets.
That Vietnam move comes at a time when momentum in Sumitomo Mitsui Trust Group’s stock has been strong. It has a 90 day share price return of 28.68% and a year to date share price return of 44.70%, alongside a 1 year total shareholder return of 73.14%. This builds on very large 3 year and 5 year total shareholder returns and indicates that investors have recently been willing to pay more for the shares as the company broadens its international reach.
Capture this international expansion story, then size up other banks and financial stocks with strong momentum and overseas growth plans using our hand picked 26 high quality undervalued stocks.After a run like this and a clear push into Vietnam, some investors may view Sumitomo Mitsui Trust Group as already priced for success, while others may see further upside potential. Where does the current valuation place you on that spectrum?
Preferred Price-to-Earnings of 13.1x: Is it justified?
On recent prices, Sumitomo Mitsui Trust Group trades on a P/E of 13.1x, which our data flags as good value compared with both peers and an estimated fair level for the stock.
The P/E ratio compares the current share price with earnings per share. For a bank like Sumitomo Mitsui Trust Group it is a quick way of seeing how much investors are paying for each unit of current profit. A lower P/E than comparable banks can suggest the market is applying a discount to those earnings, while a higher one can imply a premium.
Here, the company is described as good value on several fronts. The current 13.1x P/E is below the estimated fair P/E of 15.1x, and it is also below both the JP Banks industry average of 15.2x and a peer average of 17.5x. That combination points to a market valuation that is materially lower than levels suggested by both the fair ratio work and by how similar banks are priced.
This is where the fair ratio work comes in for Sumitomo Mitsui Trust Group. It is worth a closer look through the dedicated fair ratio view, which sets out how that higher 15.1x level was derived and how the stock might move toward it over time. Explore the SWS fair ratio for Sumitomo Mitsui Trust Group
Result: Price-to-Earnings of 13.1x (UNDERVALUED)
However, there are clear risks for Sumitomo Mitsui Trust Group, including annual revenue that declined 6.8% and the execution challenge of expanding its asset management presence in Vietnam.
Find out about the key risks to this Sumitomo Mitsui Trust Group narrative.
Another View Using The SWS DCF Model
While the P/E of 13.1x suggests Sumitomo Mitsui Trust Group is on the cheap side, the SWS DCF model is even more generous. It points to a fair value of ¥2,856.1 a share, compared with the current ¥1,761, implying the stock is undervalued on cash flow terms as well. Which signal do you find more persuasive?
For a closer look at how this cash flow based view is built and what assumptions sit behind it, 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 Sumitomo Mitsui Trust Group 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 26 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 mixed signals on value and risk around Sumitomo Mitsui Trust Group, it makes sense to review the data directly and act promptly. To see why some investors are optimistic, take a closer look at the 5 key rewards.
Looking for more investment ideas beyond Sumitomo Mitsui Trust Group?
If you stop with Sumitomo Mitsui Trust Group, you could miss other stocks with strong fundamentals, reliable income or underappreciated potential that fit your portfolio goals.
- Target potential income anchors for your portfolio by reviewing steady payers in the 28 dividend fortresses.
- Spot resilient businesses that may handle shocks better by filtering for companies in the 58 resilient stocks with low risk scores.
- Hunt for under the radar opportunities with solid numbers by scanning the 74 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