Nichirei (TSE:2871): Assessing Valuation After Logistics Expansion Push in ASEAN

Nichirei (TSE:2871) is making headlines with its decision to boost the capital of Nichirei Logistics Group Inc. to reinforce logistics operations across the ASEAN region. Investors are watching how this expansion could impact the company’s growth opportunities and market footprint.

See our latest analysis for Nichirei.

Momentum has been building lately for Nichirei, with its proactive expansion moves sparking renewed interest. While the 1-year total shareholder return stands at -3.6%, steady operational gains and a 30-day share price return of 6.4% suggest sentiment has started to improve. This comes against a robust three-year total return of 44%.

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With these developments and a recent uptick in share price, investors are left wondering: is Nichirei now trading below its intrinsic value, or has the market already factored in all its future growth potential?

Price-to-Earnings of 18.3x: Is it justified?

Nichirei is currently trading at a price-to-earnings (P/E) ratio of 18.3x, putting it above the industry average and just below its estimated fair P/E. The last close price was ¥1,903, so investors should assess whether this premium is warranted by its future prospects.

The P/E ratio offers a snapshot of how the market values the company’s current earnings and anticipated profit growth. It is particularly relevant for established sectors like food and logistics where stable cash flows and steady performance are valued.

Compared to its industry, Nichirei’s P/E is higher than the JP Food sector average of 16.4x. This suggests the market has assigned a premium. However, the fair P/E, based on fundamental analysis, sits at 20.4x. This is a level the market could adjust toward if Nichirei delivers on its growth and margin potential. Notably, relative to peer companies averaging a much higher P/E of 26x, Nichirei still appears reasonably priced in its sector context.

Explore the SWS fair ratio for Nichirei

Result: Price-to-Earnings of 18.3x (ABOUT RIGHT)

However, persistent weak year-to-date performance and modest revenue growth could challenge the optimism, particularly if broader industry sentiment sours unexpectedly.

Find out about the key risks to this Nichirei narrative.

Another View: SWS DCF Model

While the recent analysis focused on Nichirei’s price-to-earnings ratio, the SWS DCF model offers a different perspective. According to this approach, Nichirei is trading at about 13.7% below its estimated fair value. Does this suggest an overlooked opportunity, or are there risks the earnings ratio does not capture?

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 Nichirei 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 917 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 Nichirei Narrative

If you see things differently or want a hands-on approach, you can dive into the numbers and put together your own narrative in just a few minutes. Do it your way

A great starting point for your Nichirei research is our analysis highlighting 3 key rewards and 1 important warning sign 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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