Nippon Steel (TSE:5401) Cuts Losses by 20.4% Annually, Testing Turnaround Narrative

Nippon Steel (TSE:5401) remains unprofitable, but over the past five years, the company has narrowed its losses at an annual rate of 20.4%. While revenue is forecast to grow at 3.1% per year, trailing the broader Japanese market’s 4.4% projection, earnings are expected to accelerate at 28.94% per year with profitability anticipated within the next three years. Shares are trading at ¥594.6, significantly below an estimated fair value of ¥1,055.76. This has investors weighing the company’s path to profitability and the potential for a valuation boost if targets are met.

See our full analysis for Nippon Steel.

Next, we will measure these earnings against the most widely held narratives and see which storylines stand up to the latest numbers and which get challenged.

Curious how numbers become stories that shape markets? Explore Community Narratives

Losses Narrow by 20.4% Annually

• Nippon Steel has reduced its annual losses by 20.4% per year over the past five years, illustrating a consistent effort to control costs and move toward profitability.
• The prevailing market analysis highlights that this improving loss trend strongly supports the idea that long-term strategic moves, such as maintaining focus on operational efficiency and targeted expansion, are beginning to pay off.
  • This downward trajectory in losses suggests the company could achieve sustained profitability within the next three years, contrary to concerns about ongoing deficits.
  • It is notable that even in a challenging industry environment, the pace of loss reduction aligns with optimism for Nippon Steel’s turnaround story.

Dividend Sustainability Remains a Key Concern

• There are explicit concerns in the filing about the sustainability of Nippon Steel’s dividend payouts, connecting directly to the company’s still-unprofitable status.
• Critics highlight that risk factors like an unprofitable bottom line and ongoing financial pressures could eventually force a cut in dividends or necessitate changes to capital allocation policies.
  • This tension is underscored by the company’s need to balance shareholder returns with the imperative to shore up its financial position over the next several years.
  • Bears argue the market may not reward low valuation multiples if dividends are not sustainable, which could limit share price appreciation in the near term.

Shares Trade at 0.4x Price-To-Sales, Below Peers

• With Nippon Steel’s shares trading at just 0.4 times sales while the current price (¥594.6) also sits well below the DCF fair value of ¥1,055.76, the stock stands out against both industry and peer averages for value.
• The prevailing market view is that this wide valuation discount reflects investor caution about near-term profitability but simultaneously leaves room for significant multiple expansion if earnings forecasts are met.
  • Analysts point out that as soon as Nippon Steel demonstrates a concrete path to profit, there may be swift upside repricing, closing the gap with fair value.
  • Share price movement in context with sector trends means that even modest earnings momentum could draw sharp attention from value investors looking for turnaround opportunities.

If you want to see how investors are weighing these themes and what the community thinks about Nippon Steel’s turnaround story, check out the consensus narrative.

📊 Read the full Nippon Steel Consensus Narrative.

Next Steps

Don't just look at this quarter; the real story is in the long-term trend. We've done an in-depth analysis on Nippon Steel's growth and its valuation to see if today's price is a bargain. Add the company to your watchlist or portfolio now so you don't miss the next big move.

See What Else Is Out There

Nippon Steel's ongoing unprofitability and concerns over dividend sustainability highlight the risks of relying on companies with weaker financial foundations.

If you want more reliable income potential and reduced risk, check out these 1971 dividend stocks with yields > 3% to see companies with strong dividend track records and healthier fundamentals.

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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