ASICS (TSE:7936): Evaluating Valuation After Recent Share Price Dip

ASICS (TSE:7936) recently caught the attention of investors following a noticeable dip in its share price over the past month. The company, known globally for its sportswear and running shoes, has seen its stock performance shift even though its business fundamentals have remained steady.

See our latest analysis for ASICS.

While ASICS has faced a retreat in its share price over the past month, the broader trend remains impressive, with a year-to-date share price return of 22.29% and a remarkable total shareholder return of 25.4% over the last year. Long-term holders have enjoyed extraordinary gains, posting a 415.75% three-year total shareholder return. This suggests that although recent momentum has cooled, growth potential is not out of reach for patient investors.

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With strong fundamentals and shares trading about 23% below analyst price targets, the real question for investors is whether ASICS is currently undervalued or if the market has already accounted for its future growth prospects.

Price-to-Earnings of 31.5x: Is it justified?

At a last close price of ¥3,741, ASICS is trading at a price-to-earnings (P/E) ratio of 31.5x, making it appear significantly more expensive than its Japanese luxury sector peers.

The price-to-earnings ratio compares a company's share price to its annual earnings per share, helping investors understand how much they are paying for each yen of profit. For companies like ASICS, active in a branded consumer segment with strong recognition, a high P/E could signal expectations of robust future earnings growth or premium brand value.

However, this P/E ratio stands well above both the Japanese luxury industry average of 14.8x and the peer group average of 14.8x. It is also notably higher than the estimated fair price-to-earnings ratio of 23.1x. The market is currently attributing a premium to ASICS far beyond sector norms, which may indicate enthusiastic sentiment regarding its growth prospects. This also highlights the elevated expectations already reflected in the share price.

Explore the SWS fair ratio for ASICS

Result: Price-to-Earnings of 31.5x (OVERVALUED)

However, slowing revenue and net income growth, or weakening consumer demand, could quickly challenge the optimism currently priced into ASICS shares.

Find out about the key risks to this ASICS narrative.

Another View: SWS DCF Model Weighs In

While ASICS shares appear expensive compared to industry multiples, our DCF model provides a different perspective. According to the SWS DCF model, the current price of ¥3,741 is above what we estimate as fair value at ¥3,286.39. This suggests the shares may actually be trading at a 13.9% premium. Does this challenge the idea that elevated multiples are justified by future growth, or does it simply reflect high investor confidence?

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 ASICS 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 920 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 ASICS Narrative

If you want a different perspective or enjoy diving into the numbers yourself, you can shape your story from the ground up in just minutes with Do it your way.

A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding ASICS.

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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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