Nichirei (TSE:2871) Valuation in Focus After Profit Boost from Strategic Asset Moves and Depreciation Shift

Nichirei (TSE:2871) has just unveiled its latest earnings, revealing steady sales and a boost in profits following an investment security sale and updates to its asset management approach.

The company’s decision to adopt a new depreciation method and adjust asset lifespan reflects a focus on sustainable profitability and capital efficiency going forward.

See our latest analysis for Nichirei.

Nichirei’s recent moves have helped the stock regain momentum, with a 6.4% share price return over the past month and a 9.7% gain across three months. However, the year-to-date share price is still below January levels. Over the long haul, its total shareholder return stands at nearly 44% for three years. This is evidence that, despite current volatility, the company has delivered solid value for patient investors.

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With the stock still trading at a discount to analyst targets and the company’s strategic shifts gaining traction, the question now is whether Nichirei shares remain undervalued or if the market already reflects its growth outlook.

Price-to-Earnings of 18x: Is it justified?

With Nichirei currently trading at a price-to-earnings (P/E) ratio of 18x, the stock appears attractively valued relative to its peer group's average of 21.2x, yet slightly pricier compared to the Japanese Food industry average of 16.5x. The last close price stands at ¥1,870, and this gap suggests the stock may offer value for those seeking reasonable entry points in the sector.

The price-to-earnings ratio is a classic measure of how much the market is willing to pay today for a company's earnings. For steady and mature food sector names like Nichirei, this multiple signals the level of confidence investors have in profit stability and growth consistency.

While the P/E below the peer average hints Nichirei could be overlooked, it is worth noting the company’s fair value P/E is estimated at 20.2x. This is a level the market could move toward if the company’s recent earnings growth and profitability trends persist.

Result: Price-to-Earnings of 18x (UNDERVALUED)

Explore the SWS fair ratio for Nichirei

However, investors should keep in mind that slower revenue growth and recent share price declines could challenge further upside if trends do not improve.

Find out about the key risks to this Nichirei narrative.

Another View: What Does the SWS DCF Model Suggest?

Looking at Nichirei through our DCF model provides a different perspective. The SWS DCF model estimates the company's fair value at ¥2,205.48, which is about 15% above the current market price. This suggests the stock could be undervalued, but is the margin significant enough to warrant action?

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 879 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 enjoy charting your own investment path, you can analyze Nichirei’s story for yourself in a matter of 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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