Should You Rethink Denka After Its 5.7% Jump and Industry Tailwinds in 2025?

Thinking about what to do with your Denka shares, or maybe you are considering jumping in now? Either way, you are not alone. This stock has taken an interesting journey recently, with a 5.7% jump over the past month and a full-year return of 13.8%. That puts Denka squarely in the spotlight for both cautious optimists and bargain hunters alike. Still, it has not all been smooth sailing, as the 3-year and 5-year performance sit at -20.5% and -12.1%. This reminds us that long-term confidence in the name has not yet fully returned.

Much of the recent energy around Denka can be traced to notable market developments impacting the broader chemicals and advanced materials sector. Shifts in global supply chains and increasing demand for specialty chemical solutions have brought renewed attention to the company, encouraging investors to take a fresh look at Denka’s prospects. It seems that risk perceptions may be changing as industry sentiment recovers and investors spot new potential drivers for growth.

But the real question everyone wants answered is simple: is Denka undervalued right now? If we go by the numbers, Denka snags a solid value score of 5 out of 6 by our checks for undervaluation, flashing a promising signal for those seeking hidden value in the market. Next, we will break down these valuation metrics, explore what is driving this score, and let you in on one method that might give you an even clearer edge at the end of this article.

Denka delivered 13.8% returns over the last year. See how this stacks up to the rest of the Chemicals industry.

Approach 1: Denka Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model projects a company’s future free cash flows and discounts them back to the present to estimate the stock’s intrinsic value. For Denka, this approach calculates value by looking at both near-term analyst forecasts and Simply Wall St’s long-range estimates.

Currently, Denka’s last twelve months Free Cash Flow (FCF) stands at a negative ¥29.7 billion, reflecting near-term pressures. However, analyst and model projections see significant improvement ahead, with FCF expected to climb to ¥24.3 billion by 2028 and rising past ¥140 billion by 2035. These numbers indicate an acceleration as the company’s operations recover and grow.

After discounting these future cash flows using a two-stage Free Cash Flow to Equity model, the DCF model assigns Denka an intrinsic value of ¥16,039 per share. This is considerably higher than the current market price, with the implied discount suggesting the stock is 85.4% undervalued.

Based on this analysis, Denka may offer substantial upside from current levels to value-seeking investors willing to look beyond short-term volatility.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Denka is undervalued by 85.4%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Denka Price vs Sales

The Price-to-Sales (P/S) ratio is often a preferred valuation metric for companies like Denka that are currently experiencing volatility in earnings or are in turnaround phases. It sidesteps short-term profitability swings and focuses instead on the value investors are assigning to every yen of sales. For many in the chemicals sector, where earnings can be cyclical and affected by external factors, the P/S ratio offers a reliable snapshot of market sentiment and growth potential.

Generally, higher growth expectations and lower risks call for a higher “normal” or “fair” P/S ratio. In contrast, slower growth or increased risk lead to lower ratios. Denka’s current P/S ratio stands at 0.50x, which is not only below the chemicals industry average of 0.61x but also below the peer group average of 0.75x.

Simply Wall St goes a step further by calculating a proprietary Fair Ratio for Denka, which is 0.58x. The Fair Ratio considers more than just peer comparisons or industry averages. It blends in company-specific factors like earnings growth outlook, risk profile, profit margin, industry context, and market capitalization. This holistic perspective often gives a sharper, more tailored indication of what investors should be willing to pay.

With Denka’s current P/S at 0.50x and the Fair Ratio at 0.58x, the gap is just 0.08x, which is small enough to suggest the stock is about fairly valued on this measure.

Result: ABOUT RIGHT

PS 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 Denka 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 story behind the numbers, letting you combine your view of Denka’s future—things like projected revenues, profit margins, and risks—with your fair value estimate and financial forecast. Narratives link a company’s story directly to the numbers, making it easy to see how changes in your perspective can impact what you think Denka should be worth.

Accessible to everyone on Simply Wall St’s Community page, Narratives offer a simple and dynamic tool used by millions of investors. They help you decide when to buy or sell by automatically comparing your Fair Value to Denka’s current price, and they update as soon as new data, earnings, or news arrives. For example, one investor’s Narrative might anticipate rapid growth for Denka and produce a high fair value, while another expects modest gains and sets a lower estimate, showing how real perspectives can differ even for the same stock. With Narratives, you can confidently anchor your investment decisions in your unique view of Denka’s true potential.

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