Investment Opportunities: Why Sumiken Mitsui Road (1776:TYO) Could Double Soon

Sumiken Mitsui Road is a Japanese company active in the construction industry since 1948. The company operates in three business segments. The Construction segment is involved in road construction, civil engineering works, and building construction. The Manufacturing and Sales segment is engaged in the manufacturing and sale of building materials. The last segment deals with real estate transactions.

Sumiken is particularly maligned by the market, with a price-to-earnings ratio of only 6.7, a price-to-book ratio of 0.7, and a price-to-sales ratio of 0.18. I must say that I am always speechless when I come across companies that are this cheap. As we will see below, this does not come at the expense of quality. Japan certainly has some nice surprises in store for us sometimes... and yet I am not a big fan of Japanese culture!

From a dividend perspective, one might think without looking too closely that the stock is not that cheap, since the yield is only 1.88%. This is where we see the limit of an investment strategy based solely on this criterion, because the distribution ratio is only 12.6%. This company therefore has the capacity either to maintain this distribution policy in the future, and therefore invest in its own development, or to substantially increase its dividend. In both cases, it is the shareholder who benefits. If we examine the dividend over the last five years, we see that it has literally exploded, with a whopping 24.5% of average growth per year!

Dividends, profits, cash, and assets are all growing over the long term, demonstrating that Sumiken is successfully creating value over time. Cash reserves are quite good, and growing. They are sufficient to meet current needs, but not excessively high (which would represent a poor use of current assets).

Other positive points include an increasing return on assets, albeit a little low (5.42%). Also noteworthy is a debt ratio that is not only decreasing, but also very low, with only 0.52%. Also noteworthy is the number of shares outstanding that has not changed since 2015. It has even been decreasing since 2014. There is therefore no dilution of shareholder value, quite the opposite.

The only small black point of Sumiken is its gross margin low of 10.8% and very slightly down compared to the previous year.

The long history of this Japanese company speaks in its favor. Its defensive business sector (construction, civil engineering and real estate) also protects it from many economic and financial upheavals.

At the current price of 315 JPY, I believe the price can easily double in the next few years and the dividend will do at least as well.

So I just took a position on this title.