Is Zeon (TSE:4205) Undervalued? Analyzing Recent Valuation After Share Price Dip

Zeon (TSE:4205) has seen recent shifts in its stock as investors digest the latest updates. This has prompted many to watch closely. Over the past month, shares have moved lower, drawing attention to its valuation and long-term outlook.

See our latest analysis for Zeon.

While Zeon's share price has slipped 7% over the past month, its total shareholder return is still an impressive 22% over the past year, with momentum building steadily since the start of 2024. Investors seem to be weighing recent moves against the company’s longer-term growth profile. Confidence has remained firm thanks to resilient fundamentals and positive multi-year returns.

If you’re tracking names with strong trajectories, it’s worth expanding your search and discovering fast growing stocks with high insider ownership

This begs the question: is Zeon's recent dip creating a window for value investors, or is the current stock price already factoring in all the company’s future growth prospects?

Price-to-Earnings of 12.2x: Is it justified?

Zeon's stock currently trades at a price-to-earnings ratio of 12.2x, notably lower than many of its local peers and the broader industry. With the last close at ¥1614 per share, investors might wonder if this discount reflects an overlooked opportunity or signals something deeper about future growth expectations.

The price-to-earnings (P/E) ratio measures how much investors are willing to pay today for each yen of earnings. For chemical sector companies like Zeon, this multiple is closely watched because it encapsulates both current profitability and the market’s confidence in longer-term profit growth.

Despite recent headwinds, Zeon's P/E sits well below the peer average of 19.4x and just under the Japanese chemicals industry average of 12.6x. This positions Zeon as a relative bargain if the company’s fundamentals hold. Compared to the estimated fair P/E of 13.2x, the current multiple suggests there could be room for market sentiment to improve and drive re-rating potential.

Explore the SWS fair ratio for Zeon

Result: Price-to-Earnings of 12.2x (UNDERVALUED)

However, slower revenue growth and sensitivity to industry cycles could challenge the case for Zeon's valuation catching up in the near term.

Find out about the key risks to this Zeon narrative.

Another View: Discounted Cash Flow

Looking at Zeon from another angle, our DCF model puts its fair value at ¥4434.3 per share, which is far above the current share price of ¥1614. This method suggests Zeon may be significantly undervalued from a long-term cash flow perspective. Can the market catch up to this implied value, or is caution still warranted?

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 Zeon 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 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 Zeon Narrative

If you see things differently or want to form your own view, you can dive into the figures and shape your own story in just a few minutes. Do it your way

A great starting point for your Zeon 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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