Is Nagase’s Share Price Surge Justified After Latest Earnings Report?

If you have been following Nagase lately, you might be feeling a little impatient about deciding whether the stock deserves a spot in your portfolio. The company’s share price has quietly ticked up by 0.4% in the last week and posted a hefty 9.5% gain in the past month. Over the past year, Nagase is up 9.3%, but the real story is in the longer view, with an impressive 82.5% climb across three years and a substantial 144.7% return over five years. These numbers hint at genuine growth potential. They also suggest that risk perceptions could be shifting among investors in light of broader market momentum and industry developments.

With the most recent close at 3,326, Nagase’s current valuation is drawing increased scrutiny. Out of six key valuation checks used by analysts to spot undervalued stocks, Nagase only passes one, giving it a valuation score of 1. That fact should give you pause. Does the strong share price run reflect true underlying value, or is there more to the story?

To answer that question, it helps to break down the different ways investors and analysts look at stock valuation. In this article, I will walk through these methods step by step. By the end, we will touch on an even more insightful angle that often gets overlooked.

Nagase scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Nagase Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model provides a way to estimate a company's intrinsic value by projecting its expected future free cash flows and then discounting those figures back to today. This approach aims to determine what those future cash flows are worth in current terms, offering investors a fundamental look at the company's valuation.

For Nagase, analysts currently estimate last twelve months' free cash flow at ¥22.54 billion. Looking forward, projections suggest gradual increases, with free cash flow expected to reach ¥24.1 billion by 2035. Notably, while forecast data from analysts extends only five years, additional future estimates are extrapolated for a more comprehensive DCF analysis.

Based on these calculations, Nagase’s estimated intrinsic value is ¥3,221 per share. With a recent closing price of ¥3,326, the DCF model implies the stock is about 3.3% above its fair value. This small difference suggests the current market price is close to what underlying cash flows can justify and is neither meaningfully overpriced nor undervalued right now.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Nagase.

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Nagase's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Nagase Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used and reliable valuation tool when analyzing profitable companies like Nagase. This multiple helps investors quickly gauge how much the market is willing to pay for a company's earnings, making it ideal for businesses with consistent profitability.

Growth expectations and risk appetite are critical factors in determining what qualifies as a “normal” or “fair” PE ratio for a particular stock. Companies with higher expected earnings growth or lower risks typically trade at higher PE ratios, while slow-growth or riskier companies deserve lower multiples.

Currently, Nagase trades at a PE ratio of 13.6x. For perspective, the average for its Trade Distributors industry peers is 9.8x, and the peer group average stands at 9.4x. At first glance, this suggests that Nagase is priced above the sector and peer group, potentially signaling a premium valuation.

However, relying solely on peer or industry averages can miss important nuances. Simply Wall St’s proprietary Fair Ratio model incorporates factors such as Nagase’s historical earnings growth, profit margins, risks, market capitalization, and industry profile to determine a tailored fair PE ratio. For Nagase, this Fair Ratio is estimated at 15.2x, reflecting elements that set the company apart from others in its sector.

When comparing Nagase’s actual PE of 13.6x to its Fair Ratio of 15.2x, the difference is minimal. This close alignment suggests that, accounting for the company’s forecasted growth, risk profile, and industry position, Nagase’s current valuation is about where it should be.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Nagase Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let’s introduce you to Narratives. A Narrative is your way to add personal context and perspective behind the numbers, defining your own story for a company such as Nagase by setting your assumptions for fair value, future revenue, earnings, and margins. Narratives bridge the gap between the company’s broader story and concrete forecasts, tying your outlook directly to a calculated fair value.

With Narratives, which are available for free on Simply Wall St’s Community page, millions of investors can easily build and adjust their views. This makes it a simple and accessible tool. By comparing your Narrative’s fair value with Nagase’s current share price, you can quickly decide if now is the right time to buy or sell. Narratives also update dynamically, automatically reflecting the latest news or earnings releases so your decisions stay informed and relevant. For example, one investor might believe Nagase’s fair value is much higher due to optimistic growth, while another sees it as lower based on more conservative assumptions.

Do you think there's more to the story for Nagase? Create your own Narrative to let the Community know!

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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