Does Nitto Denko’s 31% Rally in 2024 Signal Room for More Growth?

Trying to decide what to do with Nitto Denko stock? You are definitely not alone. With shares trading recently at 3458.0 and boasting an impressive run, it is no wonder investors are watching closely. Over the past year, the stock has delivered a remarkable 50.2% return, and if you zoom out further, the past five years have seen the price soar by 199.4%. Even just looking at 2024, the stock is up an eye-catching 31.0% year-to-date. That kind of steady momentum makes Nitto Denko tough to ignore in today’s market.

Why has the stock climbed the way it has? Much of the optimism can be traced to broader market enthusiasm for Japanese industrials and the company’s knack for staying ahead in specialty materials. Some recent shifts in market sentiment toward growth and innovation-focused names have also played a role, helping to remake perceptions of risk and potential reward. However, beyond headlines and price charts, the most crucial question remains: is Nitto Denko undervalued, or has the rally already baked in all the good news?

Looking at a range of classic valuation checks, Nitto Denko scores a 2 out of 6 for undervaluation. While that might give some investors pause, it only tells part of the story. In the next section, we will break down different valuation methods and see how Nitto Denko stacks up. We will also explore why looking beyond these scores could reveal an even better way to judge the company’s true value.

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

Approach 1: Nitto Denko Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future cash flows and then discounting them back to the present using a calculated rate. This approach aims to determine how much those future cash flows are worth in today's money and provides investors with a fundamental benchmark for comparison.

For Nitto Denko, the current Free Cash Flow (FCF) stands at ¥115.3 billion. According to analyst projections, FCF is expected to fluctuate over the coming years and reach approximately ¥102.3 billion by 2030. The model includes estimates from analysts for about five years, with later years extrapolated. These projections are used as the basis for valuing the company’s equity using a two-stage method.

After calculations, the DCF model arrives at an intrinsic fair value of ¥2,936.94 per share. Compared to the recent share price of ¥3,458.00, the analysis suggests the stock is about 17.7% overvalued. This means the market is currently pricing in more optimism than the model’s cash flow assumptions would support.

Result: OVERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Nitto Denko may be overvalued by 17.7%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Nitto Denko Price vs Earnings

The Price-to-Earnings (PE) ratio is one of the most widely used valuation metrics for profitable companies, offering a quick way to compare a stock’s price relative to its earnings. For investors, the PE ratio often helps gauge whether the market is expecting high growth or pricing in certain risks. Higher growth often justifies a higher PE, while greater risks or industry challenges can pull that number down.

Nitto Denko is currently trading at a PE ratio of 17.6x. To put this into perspective, the average PE for the broader chemicals industry stands at 13.0x, while the average among Nitto Denko’s closest peers is 19.2x. This suggests the company is valued just below its peer group, yet noticeably above the broader industry.

The “Fair Ratio” is a proprietary benchmark from Simply Wall St that considers not only the company’s growth outlook, profit margins, and risk profile, but also factors in industry and company size. For Nitto Denko, the Fair Ratio is estimated at 18.4x. This comprehensive approach makes the Fair Ratio a more tailored and meaningful yardstick than simply looking at peer or industry averages.

Comparing Nitto Denko’s actual PE of 17.6x with its Fair Ratio of 18.4x, the difference is minimal, indicating that the stock’s valuation is ABOUT RIGHT when considering its outlook, profitability, and risk profile.

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 Nitto Denko Narrative

Earlier we mentioned that there's an even better way to understand valuation. Let's introduce you to Narratives. A Narrative is a simple yet powerful tool that lets investors create a story about a company by connecting their perspective on future revenue, profit margins, and fair value, all grounded in real financial forecasts. Instead of just viewing static numbers, Narratives let you link Nitto Denko’s unique business outlook directly to a specific fair value and investment thesis.

Available right on Simply Wall St's Community page, Narratives are an accessible feature trusted by millions of investors to help clarify buy and sell decisions. By comparing your chosen Narrative fair value to Nitto Denko’s current share price, you can quickly see if your outlook suggests an opportunity or a risk. In addition, Narratives update dynamically as new news or earnings are released, so your analysis always reflects the latest realities.

For example, one investor's optimistic Narrative might put Nitto Denko’s fair value above ¥4,000 per share, while a more conservative user might see only ¥2,700. This reflects real differences in assumptions and confidence. Narratives help you cut through the noise and invest in Nitto Denko with confidence, using a process that is as dynamic as the market itself.

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