Sumitomo Chemical Company And 2 Other Japanese Stocks Estimated To Be Undervalued

August 28, 2024

Japan’s stock markets have seen modest gains recently, with the Nikkei 225 Index rising 0.8% and the broader TOPIX Index up 0.2%. Amid speculation about potential interest rate hikes by the Bank of Japan, investors are keenly observing market movements and economic indicators to identify undervalued opportunities. In this context, finding stocks that are trading below their intrinsic value can be particularly rewarding for investors looking to capitalize on market inefficiencies.

Top 10 Undervalued Stocks Based On Cash Flows In Japan

Name	Current Price	Fair Value (Est)	Discount (Est)
Funai Soken Holdings (TSE:9757)	¥2321.00	¥4639.80	50%
Hagiwara Electric Holdings (TSE:7467)	¥3540.00	¥6768.43	47.7%
Kotobuki Spirits (TSE:2222)	¥1729.00	¥3434.73	49.7%
Densan System Holdings (TSE:4072)	¥2787.00	¥5355.04	48%
BayCurrent Consulting (TSE:6532)	¥4564.00	¥8597.45	46.9%
EnomotoLtd (TSE:6928)	¥1495.00	¥2948.54	49.3%
Adventure (TSE:6030)	¥3815.00	¥7430.44	48.7%
Visional (TSE:4194)	¥8890.00	¥17141.03	48.1%
TORIDOLL Holdings (TSE:3397)	¥3726.00	¥7370.81	49.4%
SBI ARUHI (TSE:7198)	¥860.00	¥1705.03	49.6%

Click here to see the full list of 80 stocks from our Undervalued Japanese Stocks Based On Cash Flows screener.

Let's take a closer look at a couple of our picks from the screened companies.

Sumitomo Chemical Company (TSE:4005)

Overview: Sumitomo Chemical Company, Limited operates globally in chemicals and plastics, energy and functional materials, IT-related chemicals, health and crop sciences, pharmaceuticals, among other sectors with a market cap of ¥678.09 billion.

Operations: Sumitomo Chemical's revenue segments include Essential Chemicals (¥789.13 billion), IT-Related Chemicals (¥431.63 billion), Health and Agriculture Related Business (¥562.22 billion), Energy & Functional Materials (¥310.76 billion), and Pharmaceuticals (¥357.67 billion).

Estimated Discount To Fair Value: 41.3%

Sumitomo Chemical Company is trading at ¥414.3, significantly below its estimated fair value of ¥705.76, indicating it may be undervalued based on discounted cash flow analysis. Despite a forecasted revenue growth of 4.5% per year and expected profitability within three years, its debt coverage by operating cash flow is weak and the dividend yield of 2.17% isn't well supported by earnings or free cash flows. Recent events include being added to the S&P Japan Mid Cap 100 index but dropped from several international indices in June 2024.

TSE:4005 Discounted Cash Flow as at Aug 2024

BayCurrent Consulting (TSE:6532)

Overview: BayCurrent Consulting, Inc. offers consulting services in Japan and has a market cap of ¥692.46 billion.

Operations: BayCurrent Consulting, Inc. generates revenue through its consulting services in Japan.

Estimated Discount To Fair Value: 46.9%

BayCurrent Consulting is trading at ¥4564, well below its estimated fair value of ¥8597.45, suggesting it is undervalued based on discounted cash flow analysis. The company's earnings grew by 17.4% over the past year and are forecast to grow 18.52% annually, outpacing the JP market's average growth rates in both revenue and earnings. However, its share price has been highly volatile recently, which may pose a risk for investors seeking stability.

TSE:6532 Discounted Cash Flow as at Aug 2024

Premium Group (TSE:7199)

Overview: Premium Group Co., Ltd. provides financing and services worldwide, with a market cap of ¥78.61 billion.

Operations: The company's revenue segments include Finance at ¥19.20 billion, Failure Warranty at ¥8.15 billion, and Auto Mobility Service (including Car Premium Business) at ¥7.51 billion.

Estimated Discount To Fair Value: 38.4%

Premium Group, trading at ¥2075, is significantly undervalued with an estimated fair value of ¥3367.91 based on discounted cash flow analysis. Despite debt not being well-covered by operating cash flow, the company's earnings are expected to grow 19.46% annually, outpacing the JP market's 8.5%. Recent board decisions to dispose of treasury shares as restricted stock remuneration could impact future valuations but highlight strategic financial maneuvering aimed at long-term growth.

TSE:7199 Discounted Cash Flow as at Aug 2024

Next Steps

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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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