Kagome (TSE:2811) Valuation in Focus After Earnings Forecast Cut and International Sales Challenges

Kagome (TSE:2811) recently lowered its earnings forecast for the year, citing softer sales in its international business, slower customer demand in tomato processing, discontinued seasonal items, and temporary losses related to manufacturing defects.

See our latest analysis for Kagome.

After Kagome’s downward earnings revision and ongoing international challenges, the share price has struggled to regain momentum, with a 1.9% one-day gain offering only a brief reprieve from its longer slide. Year-to-date, the share price has declined 9%, and total shareholder return over the last year is down nearly 9.4%, signaling that the market remains cautious about near-term growth as headwinds persist.

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With expectations reset and near-term uncertainty weighing on Kagome’s share price, the question now is whether the recent declines present an undervalued entry point for investors, or if the market is already factoring in future risks and muted growth ahead.

Price-to-Earnings of 19.4x: Is it justified?

Kagome is currently trading at a price-to-earnings ratio (P/E) of 19.4x. This figure suggests investors are paying a premium for each yen of the company’s earnings, relative to both industry and fair value benchmarks.

The price-to-earnings ratio is a widely used gauge that compares a company's share price to its net earnings. For Kagome, the 19.4x multiple means the market is placing a substantial value on recent profit levels. This could reflect either expectations for stability or inherent resilience in the food sector.

However, this valuation looks steep next to the Japanese Food industry average of 16.1x, and even further above the estimated fair P/E ratio of 16.5x. This implies that the market has higher expectations for Kagome, or is ignoring weaker near-term fundamentals. If sentiment shifts, the stock’s multiple could move closer to the fair ratio benchmark.

Explore the SWS fair ratio for Kagome

Result: Price-to-Earnings of 19.4x (OVERVALUED)

However, weaker revenue trends and persistent international headwinds could quickly alter Kagome’s outlook if market confidence does not improve soon.

Find out about the key risks to this Kagome narrative.

Another View: Discounted Cash Flow Says Undervalued

While the current price-to-earnings ratio suggests Kagome is expensive compared to its sector, our SWS DCF model presents a very different perspective. According to this method, Kagome is trading at around 90% below its estimated fair value. How reliable is this deep value signal, and could the market’s caution be excessive?

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 Kagome 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 870 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 Kagome Narrative

Should you see things differently or wish to dive into Kagome’s numbers firsthand, you can craft your own narrative in just a few minutes: Do it your way.

A great starting point for your Kagome research is our analysis highlighting 3 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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