Hokuhoku Financial Group (TSE:8377): Assessing Valuation After Upgraded Profit Outlook and Dividend Increase

Hokuhoku Financial Group (TSE:8377) just raised its profit outlook and dividend for both the quarter and full year, citing stronger loan growth, improved interest and fee income, and lower credit costs.

See our latest analysis for Hokuhoku Financial Group.

Alongside its stronger profit outlook and dividend hike, Hokuhoku Financial Group recently unveiled a share repurchase program and board discussions on share cancellation, further signaling confidence in its future. The share price is up 12.8% over the past month and a remarkable 115.4% year-to-date, with momentum clearly building, as reflected in an impressive 140.9% total shareholder return over the past year.

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But after such a rapid run-up and multiple upgrades to guidance, is Hokuhoku Financial Group still undervalued? Or has the market already factored in the company’s improving outlook and future growth potential?

Price-to-Earnings of 11x: Is it justified?

Hokuhoku Financial Group’s shares trade at a price-to-earnings ratio of 11x, which is lower than the broader Japanese market median. The last close price of ¥4,158 signals investors may still be getting in at a favorable earnings multiple.

The price-to-earnings ratio, or P/E, gauges what the market is willing to pay for a company’s earnings. For banks like Hokuhoku, a lower P/E can suggest the stock is undervalued if profits are stable or growing, or possibly that the sector faces uncertainty.

At 11x, Hokuhoku’s P/E is below the market average (14.1x), as well as the peer group (12.2x) and industry (11.4x) averages. The company’s fair P/E ratio is estimated at 14.2x, which highlights a potential upside if the market starts to price its improving growth and profitability more like its peers.

Explore the SWS fair ratio for Hokuhoku Financial Group

Result: Price-to-Earnings of 11x (UNDERVALUED)

However, risks remain if loan growth slows or if expectations outpace actual earnings momentum, which could put pressure on Hokuhoku's strong valuation and recent share gains.

Find out about the key risks to this Hokuhoku Financial Group narrative.

Another View: What Does the SWS DCF Model Say?

Looking beyond earnings multiples, our DCF model offers a different perspective. According to its calculation, Hokuhoku Financial Group’s current share price of ¥4,158 is well above its assessed fair value of ¥3,132. This outcome suggests the stock may be overvalued by this method, prompting investors to ask whether momentum can keep running or is due a pause.

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 Hokuhoku Financial 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 883 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Hokuhoku Financial Group Narrative

If you have your own perspective or want to take a hands-on approach, it’s easy to dive into the numbers and craft your own story in just minutes. Simply Do it your way.

A great starting point for your Hokuhoku Financial Group research is our analysis highlighting 4 key rewards and 2 important warning signs that could impact your investment decision.

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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.

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