Is Lion an Opportunity After the Recent Oral Health Collaboration News?

Thinking about what to do with Lion stock these days? You’re definitely not alone. Over the past year, Lion has been anything but boring, serving up an 8.1% gain for investors who have held on and a bumpy ride for anyone watching closely. Shorter term, it’s been more subdued, with modest losses of 0.3% over the past week and 0.5% in the last month. Year to date, it’s down 6.8%, so it’s fair to say sentiment about its potential has been in flux. If you stretch that timeline out even further, Lion’s five-year return sits at -21.9%, reminding us that not all growth stories are straight lines upward. The more encouraging three-year return of 5.3% shows hints of recovery and resilience.

Market chatter has been swirling around Lion due to new developments that have reshaped risk perception, nudging investors to revisit the company’s prospects. With all of this in mind, how should you think about valuation right now? Based on our scorecard, Lion is currently undervalued in 3 out of 6 key valuation checks, giving it a solid value score of 3. That’s a good sign, but it’s not the full story.

Next, let’s dive into the nuts and bolts of how Lion stacks up against the various valuation lenses analysts typically use to judge whether a stock is a good buy or something to avoid. Stick around, because at the end of the article, we’ll talk about one unexpected approach that might change how you think about valuation altogether.

Lion delivered 8.1% returns over the last year. See how this stacks up to the rest of the Household Products industry.

Approach 1: Lion Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's fair value by projecting its future free cash flows and then discounting them back to their value today. This approach helps investors measure what the business is worth based on its ability to generate cash in the years ahead.

For Lion, the most recent reported Free Cash Flow sits at ¥13.8 billion. Analyst forecasts predict steady growth, with cash flow expected to reach ¥27.3 billion by the end of 2029. Estimates beyond five years are extrapolated to capture the company’s long-term earning power, since analysts typically provide near-term projections. All figures are in Japanese Yen (¥).

Using this DCF approach, Lion's intrinsic value per share is calculated to be ¥2,353. Based on current market pricing, this implies the stock trades at a 31.5% discount to its estimated fair value. In other words, the model suggests Lion is noticeably undervalued at present and may attract value-focused investors.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Lion.

Our Discounted Cash Flow (DCF) analysis suggests Lion is undervalued by 31.5%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Lion Price vs Earnings (PE Ratio)

The Price-to-Earnings (PE) ratio is a widely used way to value profitable companies like Lion. It works well here because Lion consistently generates earnings, making it straightforward for investors to assess how much they are paying for each yen of profit. PE ratios provide insight into market sentiment and the expectations priced into the stock, helping investors judge whether they are getting good value for their money.

However, a “good” PE ratio can vary depending on a company’s growth outlook and risk profile. Higher-growth or lower-risk companies typically warrant higher PE ratios, while companies with more uncertainty or slower earnings growth might justify a lower multiple. For Lion, the current PE ratio sits at 21.4x. That is just above the industry average Household Products PE of 18.9x, and slightly higher than the peer group average of 20.6x. This positioning indicates that the market may have a slightly more optimistic view of Lion’s prospects compared to its closest rivals.

Simply Wall St calculates a “Fair Ratio” for each company, incorporating not just industry averages and peers, but also Lion’s unique factors like earnings growth, profit margins, risks, and overall market cap. For Lion, the Fair Ratio comes out to 26.2x. This is higher than both its actual PE ratio and industry benchmarks, suggesting that, after adjusting for Lion’s specifics, the stock is trading below what would be considered fair value by these comprehensive standards. This makes the Fair Ratio a more nuanced and actionable guide for investors than looking at industry averages alone.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Lion Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your personal story or perspective about a company, connecting what you believe about its future with concrete estimates like fair value, future revenue, earnings, and margins. By making your views explicit, Narratives bridge the gap between financial forecasts and what really drives a stock's worth: its unfolding story.

Available on Simply Wall St’s Community page and used by millions of investors, Narratives are a straightforward tool for bringing together your outlook and the actual numbers. They guide your buy or sell decisions by comparing your Fair Value to the current Price. What makes Narratives unique is their dynamic nature. As new news or earnings come in, they update in real time so your conclusions always reflect the latest developments.

For Lion, for example, some investors hold a positive Narrative driven by expectations for strong oral health care growth and digital transformation, targeting a fair value as high as ¥2,150 per share, while others are more cautious, citing execution and margin risks and setting a fair value as low as ¥1,640. Narratives make this diversity of outlook clear and actionable, so you can see where your beliefs fit in before you invest.

Do you think there's more to the story for Lion? Create your own Narrative to let the Community know!

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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