Is Pigeon Fairly Priced After Recent Family Wellness Market Developments?

If you have been tracking Pigeon lately, you are probably wondering whether it is time to buy in, hold steady, or move on. Pigeon’s share price has delivered a roller-coaster ride over the last few years. If you zoom in, you will see some intriguing signals worth a closer look. Over the past year, the stock has surged by 25.1%, including a strong 27.9% gain year-to-date. Just in the past month, shares have climbed 3.1%, although there was a slight dip of 1.4% in the latest week. Despite these recent positives, the three- and five-year returns tell a different story, with the five-year performance down a striking 51.9%.

Some of these moves can be traced back to the changing sentiment towards the consumer goods sector and specific market developments that have improved the outlook for companies focused on childcare and family wellness. Investors seem to be reassessing the risks and growth prospects for key players like Pigeon, which has caused the stock to fluctuate in both directions.

When it comes to deciding what’s next for your portfolio, the big question is valuation. Is Pigeon attractively priced after its recent rally, or is the momentum outpacing fundamentals? Pigeon currently earns a value score of 2 out of 6, which means it is undervalued by two of the six standard valuation checks. Next, let’s break down exactly what those checks are, how they look for Pigeon, and see if there might be an even more insightful way to understand the company’s real worth.

Pigeon scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Pigeon Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) valuation is designed to estimate what a company is truly worth by projecting its future cash flows and calculating their present value. This approach takes expected free cash flows in the years ahead and discounts them back to today using a suitable rate. This offers a transparent view of intrinsic value relative to the current share price.

Pigeon’s latest twelve-month free cash flow stands at approximately ¥9,693 million. Analysts anticipate moderate cash flow growth, with projections reaching ¥10,675 million by 2029. For years beyond analyst estimates, Simply Wall St extends the forecast through modest extrapolation to provide a complete ten-year outlook.

According to these projections and the 2 Stage Free Cash Flow to Equity model, the intrinsic value for Pigeon’s shares comes out to around ¥2,178. When compared to the current market price, this implies the stock is trading at a 16.0% discount based on discounted cash flow. In other words, the DCF model suggests that Pigeon is currently undervalued by a meaningful margin, at least on a pure cash flow basis.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Pigeon is undervalued by 16.0%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Pigeon Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used measure for valuing profitable companies because it relates the current share price to the actual earnings generated by the business. For investors, the PE ratio gives a direct sense of how much they are paying for each yen of earnings. This is particularly meaningful when a company has a consistent profit stream.

It is important to note that expected growth and risk can significantly affect what is considered a "normal" or "fair" PE ratio for any given stock. If a company is expected to grow faster than the market or peers, investors may be willing to pay a higher multiple. Conversely, additional risks or stagnating growth typically warrant a lower ratio.

At present, Pigeon trades on a PE ratio of 23.2x. This is above both the household products industry average of 18.9x and the average for key peers at 17.3x. However, the proprietary "Fair Ratio" calculated by Simply Wall St for Pigeon currently stands at 24.4x. This is derived by factoring in Pigeon's earnings growth outlook, margin profile, industry standards, risks, and market capitalization. This approach helps sidestep the limitations of direct industry or peer comparisons, offering a more tailored and dynamic view of fair value.

Since Pigeon’s current PE ratio of 23.2x is slightly below the Fair Ratio of 24.4x, the shares appear valued about right relative to the company’s underlying fundamentals and prospects.

Result: ABOUT RIGHT

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 Pigeon Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is your personal story behind the numbers, blending your unique perspective on a company with your assumptions for fair value, future revenue, earnings, and profit margins. Narratives connect a company’s story with its financial forecasts and create a clear path from outlook to fair value, making investment decisions easier to justify and explain.

Narratives are simple and accessible tools, available for millions of investors on Simply Wall St’s Community page. By building your own Narrative, you can easily compare Pigeon’s Fair Value to its current Price and make smarter buy or sell decisions that reflect your beliefs, not just the market’s. Narratives are kept up to date and automatically adjust when Pigeon’s situation changes through news or new earnings reports, so your insights always stay relevant.

For example, some Pigeon investors use an optimistic Narrative with a Fair Value as high as ¥2,900, while others take a more cautious view with a Fair Value closer to ¥1,700, highlighting just how personal investment decisions can be.

Do you think there's more to the story for Pigeon? 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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