Should I buy Oriental Land (4661)? Analyzing the essence of stock prices from PER 40x, ROIC, and 2028 scenario

[Summary]

Oriental Land (4661) is recognized by everyone as one of the best companies in Japan.

However, the issue that the stock market is looking at is not already ``Is Tokyo Disney Resort strong?''

The question is how many multiples you can pay for that strength.

Oriental Land's sales for the fiscal year ending March 2026 were 704.539 billion yen, an increase of 3.7% compared to the same period last year. On the other hand, operating income decreased 2.1% to 168.413 billion yen. The company's forecast for the fiscal year ending March 2027 is for sales to be 724.312 billion yen, an increase of 2.8%, while operating income is expected to be 160.776 billion yen, a decrease of 4.5%.

In other words, sales will increase.

However, profits are slow to grow.

This discrepancy makes it difficult to evaluate OLC stock.

Going forward, the focus will be on average customer spend rather than number of visitors, EBITDA rather than operating profit, and ROIC for large-scale investments including Fantasy Springs.

In this article, we will summarize the conditions under which OLC stock's high valuation of 40x P/E will be maintained and the conditions under which it will collapse, looking into three scenarios for the fiscal year ending March 2028.

Just the conclusion first

There are three points investors should check when looking at OLC stock.

OLC is not a bad company.

On the contrary, the quality of the business is very high.

However, stock prices do not depend on whether the company is a good company, but on whether the company still has a growth rate that can justify its high valuation.

From now on, the OLC stock is not only based on preferential treatment and brand favorability, but also on seeing how much operating profit, EBITDA, and ROIC will return to in the fiscal year ending March 2028.

Current financial results: Sales are growing, but profits are slow to grow

First, check the latest financial results.

Consolidated results for the fiscal year ending March 2026 were as follows.

Sales were at a record high level, but operating income decreased.

The company cited Fantasy Springs' full-year occupancy, special events, increased revenue per guest, and increased average hotel room prices. On the other hand, costs increased, mainly in personnel and miscellaneous expenses.

The company's forecast for the fiscal year ending March 2027 is also a little heavy for investors.

What the market dislikes here is an increase in sales and a decrease in profits.

The theme park business is expected to increase revenue, but profits are expected to be depressed by miscellaneous expenses, personnel costs, and repair costs for the hotel business.

From now on, it is difficult to say that OLC's investment decisions will be ``safe because sales are increasing.''

The focus of the evaluation will be how much increased revenue can be converted into EBITDA and free cash flow.

Structural bottleneck: Competing for customer spend over number of park visitors

When considering OLC's growth, the first bottleneck is capacity.

Tokyo Disney Resort is located on a limited piece of land called Maihama. On popular days, it can get crowded and waiting times for attractions can be long. There is less room than before to increase sales by simply increasing attendance.

Therefore, the main driver of growth is not the number of customers but the average spend per customer.

This strategy is reasonable.

Get people to use limited capacity at a higher unit price. This is natural for a mature theme park operation.

However, investors are not looking at whether prices can be raised, but whether demand will collapse even if prices continue to rise.

The unit prices for one-day passports, DPAs, hotels, and food and beverage sales are already no small sum for domestic consumers' household budgets. If you go with your family, the total cost will be quite large, including transportation, meals, goods, and accommodation.

Price increases boost sales.

However, if prices go up too much, it will lead to a decline in the frequency of visits, the withdrawal of young people, a decrease in regional visitors, and an increased reliance on inbound visitors rather than domestic ones.

This is the first issue that will determine the multiple for OLC stock.

Inbound is the biggest variable in customer unit price strategy

When considering OLC's cost-per-customer strategy, inbound tourism cannot be ignored.

There is a limit to the ability to continue raising the average customer price based solely on domestic customers. For families, students, and local visitors, the total expenses, including tickets, transportation costs, food and beverages, merchandise sales, and lodging, are already heavy.

Foreign tourists visiting Japan can easily make up for this shortfall.

When the yen is weak, Japanese theme park experiences tend to appear relatively cheap to overseas visitors. Tokyo Disney Resort can be a strong destination for travelers from Southeast Asia, Taiwan, Hong Kong, South Korea, Europe and America.

However, this is also a risk.

The higher the inbound ratio, the easier it will be for OLC's average customer spend to grow.

On the other hand, it will also be more susceptible to the effects of exchange rates, aviation demand, overseas economies, and geopolitics.

In other words, inbound tourism is not just a positive factor. While supporting OLC's cost-per-customer strategy, it is also a variable that increases performance volatility.

Competition for young people's disposable time

Ticket prices aren't the only long-term risks for OLC.

Another issue is the amount of disposable time young people have.

Twenty years ago, Tokyo Disney Resort was close to the center of "special experiences." It had a very strong brand connection as a leisure activity with friends, lovers, and family.

Now there are more competitors.

Netflix, YouTube, TikTok, online games, live streaming, promotions, domestic and international travel, themed cafes, music festivals. Theme parks are not the only competition for young people's time and money.

This change does not immediately appear in short-term financial results.

Rather, it has an effect on the repeat rate for 10 to 20 years, the depth of the fan base, and the passing on of the brand from parent to child.

The reason the market has given OLC such high praise is the brand's staying power.

If the habit of ``visiting Disney many times'' weakens among young people, the long-term growth rate measured by DCF will decline. If the long-term growth rate declines, the acceptable level of PER and EV/EBITDA will also decline.

OLC's real competition isn't just domestic theme parks.

These are the holidays, smartphone time, and budgets of the younger generation.

The stage of looking at EBITDA and invested capital efficiency rather than operating profit

Fantasy Springs is a major investment for OLC.

According to official documents, the investment amount is approximately 320 billion yen. This is the largest expansion since Tokyo DisneySea opened, and the scale is different from simply adding a new attraction.

At this point, it's easy to get a little confused if you only look at operating income.

The reason is depreciation costs.

When a large-scale investment is put into operation, depreciation expenses increase on the PL. Operating income will be affected by this. However, depreciation is not a cash expense, so when looking at investment returns, you need to look at EBITDA and operating cash flow as well.

Here's what investors should watch.

Fantasy Springs investment
↓
Higher guest spend, hotel rates, DPA, merchandise, and food and beverage
↓
EBITDA growth
↓
Operating cash flow growth
↓
Recovery of invested capital
↓
ROE, ROIC, and room for shareholder returns

Operating cash flow for the fiscal year ending March 2026 was 181.281 billion yen. On the other hand, cash flow from investing activities was -172.096 billion yen.

This shows that while OLC has a strong ability to generate operating cash, it is also a company with a very heavy investment burden.

What the market will see from this point on is whether Fantasy Springs will turn into a ``recovery of invested capital'' rather than a ``hot topic.''

When looking at ROIC, the issue becomes even more severe.

Fantasy Springs Investment amount is approximately 320 billion yen, and if the increase in operating profit is 20 billion yen per year, the simple yield will be in the 6% range, and if it is 30 billion yen per year, it will be in the 9% range. Of course, in reality, there are also taxes, depreciation, additional investment, operating costs, hotel revenue, DPA, and the impact of product sales and food and beverages, so it is impossible to make a judgment based on simple calculations.

Still, this is the feeling investors are seeing.

Invested 320.0 billion yen
↓
How much operating income and EBITDA increased
↓
How many years cash recovery takes
↓
Whether ROIC exceeds the cost of capital

If it looks like it will take more than 10 years to recover a large investment, the market is likely to lower the multiple. On the other hand, if the average customer spend and hotel revenue grow more than expected and EBITDA builds up quickly, OLC's high rating will likely be maintained.

This is why you should look at ROIC rather than just the number of visitors.

What is factored into the evaluation of PER40 times?

What is important when looking at OLC stock is not the P/E ratio itself, but what the multiple is based on.

In general, a P/E ratio of around 15 times is a mature company, a P/E ratio of 20 times is a stable growth company, and a P/E ratio of 40 times is likely to reflect strong growth expectations.

For OLC to be allowed a valuation of 40x PER, it is not enough for operating income to return from 180 billion yen to 200 billion yen in the fiscal year ending March 2028.

Beyond that, we need to expect that profits will continue to grow at an annual rate of 5-10% through customer spending, hotels, DPA, product sales/restaurants, and inbound tourism.

On the other hand, if operating income remains at the 170 billion yen level and the subsequent growth rate appears low, the market will reevaluate the company as a ``highly profitable but mature company.''

What is scary for stock prices is this revaluation.

A drop in valuation from 40 times P/E to 20-30 times is likely to have a greater impact on stock prices than a slight drop in profits.

Three scenarios for the fiscal year ending March 2028

From here on, the scenario is from an investor's perspective, not a company plan.

Whether OLC's multiple will be maintained will depend on the extent to which operating income and EBITDA return toward the fiscal year ending March 2028.

Bullish scenario: 190 billion to over 200 billion yen

In a bullish scenario, the average customer spend will grow faster than market expectations.

Due to the combination of Fantasy Springs' full-year effect, DPA, hotel unit price, and inbound demand, the increase in revenue will fall firmly into EBITDA. The profit reduction plan for FY03/27 will be treated as a temporary cost increase, and operating profit will accelerate again in FY03/28.

In this case, OLC will once again be evaluated as a high-growth, high-profit company.

If the multiple is shrinking underfoot, there is room for reassessment.

Neutral scenario: 170 billion to 180 billion yen

In a neutral scenario, OLC remains a highly profitable company, but its momentum as a growth stock diminishes somewhat.

Although the average price per customer is rising, the growth in domestic consumption is slow. Inbound tourism will be supported, but the appreciation of the yen and fluctuations in travel demand will prevent a significant upside. The increase in costs cannot be completely absorbed.

In this case, the market views OLC as a "mature, high-yield stock with high barriers to entry."

It's not bad, but it's hard to get a strong premium like 40x PER. Stock prices tend to be in a range waiting for confirmation of business results.

Bearish scenario: 150 billion to 160 billion yen

In a bearish scenario, resistance to price increases increases.

The frequency of visits by domestic visitors will decline. Young people's disposable time flows toward other forms of entertainment. Inbound tourism prices are not increasing due to the strong yen and slowing overseas economies. Furthermore, the burden of personnel costs, repair costs, depreciation costs, licensing fees, etc. is heavy, and even with increased sales, profits cannot return.

In this case, the market will view OLC as no longer a high-growth company.

What is scarier for stock prices is a decline in multiples rather than a decline in profits themselves.

Even if strong brand power remains, if the growth rate declines, the evaluation axis will shift from high-growth stocks to mature companies.

Metrics that investors should watch every quarter

When looking at OLC, the following items should be checked in the quarterly financial results.

What I particularly want to see are sales per guest and operating cash flow.

Even if the number of park visitors stays the same, OLC can still grow if the average customer spend and cash increase.

On the other hand, if sales increase but operating profit margin and operating cash flow decline, investors will lower the multiple.

Three confirmations the market is waiting for

What the market is looking for from OLC is not a pretty story.

This is a re-acceleration that can be confirmed by the numbers.

What is particularly important is whether the company can see operating income exceeding 180 billion yen in the fiscal year ending March 2028.

If it stays at the 170 billion yen level, OLC will still be a highly profitable company, but it will be difficult to evaluate it as a growth stock. If we can see 190 billion yen to 200 billion yen, the recovery story for Fantasy Springs investment will become much stronger.

This difference changes the range of stock prices.

Conclusion: OLC Stock Has Moved From A “Good Company” To A “Company That Can Justify Its High Valuation”

Oriental Land remains one of Japan's leading companies.

Brand, location, management ability, pricing power, hotel business, inbound demand. No matter how you look at it, it's not a company that can be easily replaced.

However, when investing in stocks, the question is not just whether the company is good or not.

The question is whether the growth rate, profit margin, and cash recovery ability are commensurate with the multiple the market is paying.

The main battleground for OLC stock is not the decline in profits in the fiscal year ending March 2027, but rather how much of the Fantasy Springs investment can be converted into EBITDA and operating cash flow from the fiscal year ending March 2028 onwards.

What we should be looking at in the future is not flashy event names.

Average customer price, average hotel price, DPA, operating profit margin, EBITDA, operating cash flow, invested capital efficiency.

In order for OLC to regain its premium position, it needs to prove its strength in Dreamland through numbers.

This article is intended to summarize the thinking behind investment decisions, and is not intended to recommend buying or selling specific stocks. Stocks are subject to price fluctuation risk. The scenarios in this text are the author's analytical hypotheses and are not company plans or performance forecasts. When making actual investment decisions, please check the latest financial results, financial statements, securities reports, stock price, PER, and interest rate environment.

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Source

• Oriental Land “Summary of financial results for the fiscal year ending March 31, 2026, Japanese GAAP, consolidated” https://www.olc.co.jp/ja/news/news_olc/auto_20260427511455/pdfFile.pdf
• Oriental Land “Fiscal Year Ending March 2026 Financial Results Briefing Materials” https://www.olc.co.jp/ja/ir/latest/main/00/teaserItems2/0/linkList/03/link/sp2026-04.pdf
• Oriental Land “Tokyo DisneySea Large-scale Expansion Project Opening Schedule and Investment Amount” https://www.olc.co.jp/en/news/news_olc/auto_20221027551141/pdfFile.pdf