Sony Group Corp (SONY)

Total return at 5 years: 7.3%/year = 6.3% appreciation + 1.0% dividend. The target price ($32) is ex-dividend; the $1 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $29 · Multiples $27) exceeds the market price ($24).

Today — fairly valued: at $24 trades ~12.2% below its value discounted to today (~$27); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($32) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$17.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($24) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-0.1%/year) than we project (4.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~¥1,027.1 bn of owner earnings in year 5 (vs ~¥1,254.1 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on P/E — utilidad neta de operaciones continuadas atribuible. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 is the fiscal year ended 31 March 2026, not a rolling twelve-month period: Sony reports on Form 20-F and seals the period of its 6-Ks, so there is no tagged quarter with which to chain a window. All the mechanics run in yen —the reporting currency— and the conversion to dollars happens only once, at the close of the waterfall, at the live exchange rate. The base was rebuilt on continuing operations. On 1 October 2025 Sony completed the partial spin-off of the Financial Services business and the 20-F itself restates the comparatives: sales ¥11,260.0 / ¥12,034.9 / ¥12,479.6 billion and operating income ¥1,035.3 / ¥1,276.6 / ¥1,447.5 billion for the fiscal years ended March 2024, 2025 and 2026. The ¥12,957.1 billion returned by the automatic extraction corresponds to the prior fiscal year and also to a different perimeter, because it carried the financial business inside, and is not used. The reported loss of ¥326.9 billion is an accounting artifact, not economics: it comes almost entirely from recycling to earnings ¥1,377.8 billion of accumulated other comprehensive income upon executing the spin-off, of which ¥1,640.1 billion are fair value changes on debt instruments of the financial business. It is not cash and it does not repeat. Year zero's economic earnings are those from continuing operations attributable to the parent, ¥1,030.9 billion, and the model runs on that. The valuation is opened by parts: 87% of segment operating income comes from games and network services (¥463.3 billion), music (¥447.0) and image sensors (¥357.3), and none of the three is an electronics manufacturer. The base case exit multiple is the blend of the five segments weighted by the result each contributes at year 5, not a single multiple on the consolidated figure. The 6-K of 31 July 2026 (first-quarter FY2027 results) published the full forecast for the current fiscal year —sales ¥12.50 trillion (+0.2%), operating income ¥1.72 trillion (+18.8%), pre-tax income ¥1.71 trillion (+20.2%) and attributable earnings ¥1.21 trillion (+17.4%), marked as an upward revision of the previous forecast— and also brought the actual first quarter: sales ¥2,837.8 billion (+8.2%), operating income ¥476.5 (+40.2%) and attributable earnings ¥342.2 (+32.1%). The year-1 path is anchored to that guidance —an operating margin of 13.76%— and not to the restated trajectory alone; the following years resume the restated band of +6.9% and +3.7% as the base effect fades. The bear and bull cases are anchored around that same guided starting point, not around the trajectory. The fifth medium-term plan also revised upward the cumulative three-year operating flow from ¥4.8 to ¥5.7 trillion on continuing operations, raised the capex budget from ¥1.7 to ¥1.8 trillion, and maintains the long-term operating margin target of 10%. The buyback is material and is explicit: the average diluted count fell from 6,176.7 to 6,075.1 and to 6,013.2 million, close to 1.4% a year, with ¥500 billion executed in the fiscal year; the share path is a single one for all three scenarios. The split of capex between maintenance and growth is anchored to the filing: of the ¥804.9 billion invested, ¥246.7 billion was image sensor capacity expansion. Declared limits: year zero's operating flow (¥1,966.3 billion) and depreciation and amortization (¥1,180.7) come from the continuing operations block of the consolidated statement, not from the total that includes the financial business. The change in working capital for continuing operations was isolated: it was a release of ¥382.8 billion. Owner earnings additionally carry content investment (¥665.9 billion, classified by the filing as an operating activity) within maintenance capex, so as not to add back its amortization without deducting the replacement. The market capitalization anchor exchange rate, close to ¥147 per dollar, was derived by comparing the dividends paid on the certificate against the dividend per share in yen in the filing, and it only fixes the entry multiples: the verdict is computed at the live exchange rate.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $32 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $24, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $32 in 5 years plus $1 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $27. Against the current market price ($24), the margin of safety is 12.2% (trades below the maximum → there is margin) and the total return at that price would be 7.3% annually.

• Entry multiple. 21× on attributable continuing-operations income, compressing to 15× by year 5 if the path holds.
• Exit multiple. Mix of the five parts weighted by the income each contributes in year 5, with each piece within the band of its nature.
• Estimated return. +7% annually over five years, with +6% from price and +1% from the dividend.
• Dividend yield. 0.9% on today's price, with the company guiding a ten-yen-per-share increase.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (132%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. 14.6% against the 10% bar, on the balance sheet's real invested capital, now without the financial business.
• Cash generation. Continuing-operations operating cash flow for the fiscal year of ¥1,966.3 billion against ¥804.9 of investment in fixed assets; the surplus funded the buyback without debt.
• Reinvestment runway. Sensor capacity and music catalog purchases absorb capital at returns above the bar.
• Earnings quality. Reported earnings are distorted by the spin-off's accounting reclassification; the economic figure is attributable continuing-operations income.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Sony's indicators are not a single volume-times-price pair: each segment has its own. In gaming, installed console base times spending on content and network; in music, catalog times royalty collected; in sensors, installed capacity times chip price. That is why the operating income of the three segments accounting for 87% of the total is tracked, along with dividend per share, the only figure the company guides forward. The amounts are from the segment note, in billions of yen.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-mar-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Fiscal-year growth. Continuing-operations sales +3.7%, with sensors +20.2% and music +14.8% offsetting electronics −7.5%.
• Earnings driver. Continuing-operations operating income grew 13.4%, well above revenue, on mix shift toward the high-margin segments.
• Company guidance. The company does publish full guidance for the current fiscal year — sales, operating income, income before income taxes, and attributable income — plus dividend and buyback guidance; it was read from the 6-K of July 31, 2026.
• Leading indicator. Crunchyroll surpassed 21 million paid subscribers, and the sensor capacity under construction is income not yet recognized.

• Revenue recurrence. Downloadable content, network subscriptions, catalog royalties, and the anime subscription: a good part of revenue does not depend on selling a new unit.
• Differentiated product. The console platform, the music catalog, and image sensors are proprietary; consumer electronics competes on price.
• Pricing power. High in catalog and in sensors due to technical position; nil in televisions, where the filing discloses permanent pricing pressure.
• Ten-year relevance. Gaming, music, and image sensors are structurally growing markets; the risk is not demand but who serves it.
• Recession behavior. Entertainment holds up better than consumer electronics, which is a deferrable purchase.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• ✓Interest coverage (EBIT / interest)57.7x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 132% of ROIC
• !Value creation (ROIC − 10% bar)+5pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.2x
• ✓Float / working capitalFrees up cash $382.8 bn (float / negative WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.0% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net cash position. ¥2,208.9 billion of cash against ¥1,042.0 of gross debt: a net creditor position of ¥1,166.9 after the spin-off, not counting ¥627.7 of lease liabilities.
• Interest coverage. Net financial income is ¥25.1 billion against ¥1,447.5 of operating income.
• Capital intensity. Capex of ¥804.9 billion, with ¥246.7 dedicated solely to expanding sensor capacity.
• Non-controlling interest. 2.3% of continuing-operations income: not material, and already netted out by valuing on attributable income.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Cash allocation for the fiscal year ended March 2026: ¥804.9 billion of investment in fixed assets and right-of-use assets, ¥135.0 of dividends paid, and ¥522.1 of buybacks (the authorized program was up to ¥500.0 billion between May 2025 and March 2026; the fiscal year's cash outlay was somewhat larger). The music catalog purchase agreed in May 2026 falls outside the fiscal year and is not allocated here. The buyback was the lever that moved value per share the most: it retired close to 1.4% of the share count.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Scope of consolidation. It spun off the financial business and left a group of intellectual property and semiconductors, more legible and free of the lender's leverage.
• Shareholder returns. ¥500.0 billion of buybacks executed, a renewed facility, and a dividend guided from ¥25 to ¥35 per share.
• Acquisitions. Bungie forced a ¥120.1 billion impairment and the electric-vehicle joint venture with Honda an additional ¥44.9 billion loss.
• Disclosed alignment. Hiroki Totoki (CEO) holds 1,480,250 shares and Kenichiro Yoshida 2,510,115, per the directors' ownership table in Item 6 of the 20-F; there is no proxy statement, as a foreign private issuer, but the detail is available in the 20-F itself.

• The income statement shows an attributable loss of ¥326.9 billion produced by the spin-off's accounting reclassification and not by the business: any automated screen reads it as a company that lost money.
• The comparatives and the scope of consolidation changed in the same fiscal year, so the historical series in circulation blend two different companies and no ratio calculated on them means anything.
• The industry code and the market label still describe a home audio and video manufacturer, while 87% of operating income comes from three intellectual-property and semiconductor businesses.
• It trades in Tokyo and is traded in New York through a depositary receipt, with a reporting currency distinct from the quotation currency: the valuation requires a conversion step that most screens do not get right.

The source of the discount is missing buyers, and it is identifiable: there is no negative business catalyst, only an accounting and scope discontinuity that makes the series unreadable. The honest counterpoint is that the entry multiple is not low in absolute terms; what is cheap, if anything is, is the mix and not the consolidated figure.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -5%/year (-22% total): the margin of safety protects the downside. The bull (+14%/year, +90% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Memory cost. The company discloses price increases and shortages since the second half of the fiscal year, with impact on gaming, electronics, and sensors.
• Technological advantage. The first risk factor admits that competitors can catch up to its capability in image sensors.
• Recurring impairments. ¥120.1 billion against Bungie and ¥27.1 for the closure of the visual-effects business, in the same fiscal year.
• Currency exposure. Costs in yen and dollars against sales in five currencies; a strong yen hurts the sensor margin.
• Investor currency. Value is generated in yen and the price is paid in dollars: the exchange rate is part of the return.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: wide moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 4% at a PEG of 5.1 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 6% (EBIT/EV) + ROIC 15% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -0% vs our 4%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -6%/yr, bull-scenario ceiling +13%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, eroding; sources: intangibles, switching costs, efficient scale, cost advantage, network effects → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -0%, within what we project (4%) — the story squares with the numbers.