Nomura (TSE:9716) Margin Surge Challenges Optimism as Guidance Signals Three-Year Profit Decline

Nomura (TSE:9716) posted a sharp improvement in net profit margins to 6%, up from 2.3% last year, while delivering a massive 241.4% jump in earnings over the same period. The company has averaged 18.4% annual earnings growth over the past five years. However, management now expects revenue and earnings to decline by 1.3% and 3.7% per year, respectively, for the next three years. With a Price-To-Earnings ratio of 11.1x, which is well below industry and peer averages, and a share price significantly under its estimated fair value, the results highlight both the company’s impressive past profit growth and a more cautious outlook moving forward.

See our full analysis for NOMURA.

Next, let’s see how these headline numbers line up against the prevailing stories and investor narratives. We will also consider where the outlook might challenge some expectations.

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Net Profit Margins Hold Near Five-Year High

• Nomura’s current net profit margin stands at 6%, which marks a sustained recovery above last year’s 2.3% and is notably strong compared to recent years.
• Recent outperformance, shown by a 241.4% annual increase in earnings, strongly supports the case for management effectiveness and improved cost discipline.
  • This surge is well above the five-year average annual earnings growth of 18.4%.
  • What is surprising is that such a sharp earnings jump coincides with upcoming guidance that points to a reversal, as management forecasts a 3.7% annual decline in earnings in the next three years.

Guidance Shift: Decline After Breakout Year

• Company guidance points to revenue shrinking by 1.3% per year and earnings falling by 3.7% per year over the next three years, despite the most recent outsized profit growth.
• For investors, this softer outlook challenges any lingering blanket optimism about a trend of continued rapid profit gains because it suggests the recent margin gains may not be easily sustained.
  • Even with impressive historical profit quality, the shift toward declining expectations may prompt a more cautious approach to near-term forecasting.
  • This tension between booming figures and management’s caution provides context for both rewards and risks from here.

Valuation Gap to DCF and Peers Widens

• With a share price of ¥1,030 and a Price-To-Earnings ratio of 11.1x, Nomura trades at a substantial discount to both the industry average of 16x and the peer average of 19.8x, as well as below its DCF fair value of ¥1,891.55.
• The prevailing investment narrative contends this discount makes the stock attractive on paper, but only if the forecasted declines in revenue and earnings do not signal longer-term trouble.
  • High quality historical growth and low valuation multiples support favorable sentiment among value-oriented investors.
  • However, persistent bearishness is justified if falling earnings and revenue turn out to be the start of a longer-term downtrend, rather than just a short pause.

Next Steps

Don't just look at this quarter; the real story is in the long-term trend. We've done an in-depth analysis on NOMURA's growth and its valuation to see if today's price is a bargain. Add the company to your watchlist or portfolio now so you don't miss the next big move.

See What Else Is Out There

Nomura’s sharp guidance for declining revenue and earnings highlights concerns that its recent surge in profitability may not be consistently repeatable.

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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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