Assessing Dentsu After Shares Rally 15% and Moody’s Revises Outlook to Stable

So, you are thinking about what to do with your Dentsu Group shares or weighing up a new position. With the stock having just closed at 3,177.0, there is plenty to consider. Over the last month, Dentsu’s share price has surged by 15.4%, adding some real excitement after a tough period for the stock. Even more recently, the past seven days saw a healthy 2.5% bump. Yet, it is not all blue skies. Year to date, Dentsu Group is still down 14.8%, and over the last twelve months, the stock has slid a notable 23.7%.

When you step back and look at the longer-term picture, Dentsu has been something of a rollercoaster. The five-year return is positive at 10.1%, but the three-year mark tells a different story and is down 18.4%. Shifts in the global advertising sector and changes in investor sentiment about the risks and rewards for big agency groups have clearly played a part in these big swings. There is little in the latest news beyond those broader market trends, but the price activity still hints at investors repositioning for growth, perhaps seeing opportunity where others fear risk.

Valuation is the big question now. Dentsu Group currently boasts a valuation score of 5 out of 6, meaning it appears undervalued in five out of six key checks. This is a major green flag for value-seekers. In the next section, I will walk you through the main ways analysts gauge a stock’s value. And if you are searching for the most meaningful measure of Dentsu’s worth, there is an even more insightful perspective coming up at the end of this article.

Why Dentsu Group is lagging behind its peers

Approach 1: Dentsu Group Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a fundamental valuation approach that estimates a company's intrinsic value by projecting its future cash flows and discounting them back to their present value. For Dentsu Group, this model relies on forecasts of Free Cash Flow (FCF), which represents the cash a company generates after accounting for expenses and investments needed to maintain or expand its business.

Dentsu Group's latest reported Free Cash Flow is ¥143.1 billion. Analyst projections, coupled with extended estimates, indicate FCF will fluctuate over the coming years, reaching an estimated ¥108.5 billion by 2029. Beyond five years, figures are extrapolated, but the story remains clear: Dentsu is expected to continue generating significant cash in billions of yen annually.

Using these projections, the DCF model arrives at an intrinsic value of ¥7,717.7 per share. Compared to the current share price of ¥3,177, this suggests Dentsu Group is trading at a 58.8% discount to its underlying value, which may indicate potential value for investors.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Dentsu Group is undervalued by 58.8%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Dentsu Group Price vs Sales

The Price-to-Sales (P/S) ratio is a valuable metric when assessing companies with consistent revenue, particularly in industries like media where profitability may be cyclical or temporarily depressed. By focusing on revenue instead of earnings, the P/S ratio helps investors get a better sense of how the market is valuing core business activity. This makes it especially useful for companies experiencing temporary setbacks or volatile profits.

It is important to note that what counts as a “normal” or “fair” P/S ratio will depend on expectations for future growth and the inherent risks associated with the company or its industry. Higher growth prospects and greater stability can justify a higher P/S ratio, while companies facing uncertainty or limited expansion may warrant a lower one.

Dentsu Group currently trades at a P/S ratio of just 0.58x, which is noticeably below both the media industry average of 0.91x and the peer group average of 3.74x. However, simply comparing these numbers only tells part of the story. That is why Simply Wall St’s proprietary Fair Ratio model goes further by taking into account earnings growth, profit margins, risk profile, industry dynamics, and even market capitalization. For Dentsu Group, the Fair Ratio is calculated to be 3.96x, a figure well above its current level. Because the stock’s P/S lags so sharply behind what would be considered “fair,” it supports the case that Dentsu is undervalued relative to its potential.

Result: UNDERVALUED

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 Dentsu Group Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is essentially your personalized story or thesis about a company. It ties together your beliefs about Dentsu Group’s strategy and future with your assumptions for its revenue, earnings, and margins, resulting in a fair value estimate that actually reflects your perspective rather than just market consensus or analyst models.

By connecting a company’s big-picture story to specific financial forecasts and a calculated fair value, Narratives give you a dynamic lens that goes far beyond traditional metrics. This approach is built right into the Simply Wall St Community platform, making it easy and accessible for anyone to try. Millions of investors already use Narratives to map their views, track their numbers, and update their thinking as new news or earnings are released.

Using Narratives, you can instantly see if Dentsu Group’s current price is above or below your own fair value, so you know when it might be time to buy or sell. Plus, as fresh information hits the market, your Narrative can adapt and recalculate, keeping your decisions relevant and evidence-based.

For example, some Dentsu Group Narratives factor in bullish MarTech-driven growth and cost cutting to arrive at a fair value of ¥3,600 per share, while more cautious outlooks focused on international challenges land closer to ¥2,400 per share.

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