Kadokawa (TSE:9468): Reassessing Valuation After Earnings Forecast Cut and Segment Underperformance

Kadokawa (TSE:9468) shares are in focus after the company cut its full-year earnings outlook for fiscal 2026. This decision comes as challenges in its publishing and film segments outweighed the positive impact of a successful game launch.

See our latest analysis for Kadokawa.

The earnings downgrade punctuates a tough year for Kadokawa, with momentum clearly fading. Despite a successful game launch, the 1-year total shareholder return has tumbled to -26.34%, reversing the strong multi-year gains investors had previously enjoyed. Short-term share price declines following the announcement highlight the market’s concern over rising costs and segment underperformance. At the same time, the long-term picture still reflects over 100% five-year total return.

If you’re curious to see what else is making moves beyond publishing and media, now might be an ideal time to broaden your perspective and discover fast growing stocks with high insider ownership

The question now is whether Kadokawa’s sharp selloff has created an undervalued entry point for investors, or if its recent setbacks and lowered outlook mean the current price already reflects slower future growth.

Price-to-Earnings of 80.4x: Is it justified?

Kadokawa is currently trading at a price-to-earnings (P/E) ratio of 80.4x, which is unusually high compared to both peers and the broader market. The last close was ¥3,175. This level implies investor expectations for rapid profit growth or premium business quality.

The P/E ratio compares a company's share price to its per-share earnings. For Kadokawa, this high multiple reflects either anticipated substantial future profits or market optimism about its long-term strategy and brand. In sectors like media and publishing, elevated P/E ratios can sometimes signal confidence in future earnings expansion, but they can also highlight heightened risk if growth fails to materialize.

Examining Kadokawa’s current P/E against its industry is revealing. The company’s P/E of 80.4x greatly exceeds the Japanese media industry average of 16.1x, as well as the peer average of just 14.6x. Relative to the estimated fair value P/E ratio of 37.6x, Kadokawa’s multiple stands out as steep, indicating the market may be overpricing recent prospects or discounting the impact of recent earnings volatility. If sentiment changes or execution falters, the multiple could compress toward a lower level more in line with industry benchmarks.

Explore the SWS fair ratio for Kadokawa

Result: Price-to-Earnings of 80.4x (OVERVALUED)

However, unexpected cost increases or weaker than anticipated segment recovery could quickly challenge the current optimism reflected in Kadokawa’s share price.

Find out about the key risks to this Kadokawa narrative.

Another View: Discounted Cash Flow Model

While the high P/E ratio suggests Kadokawa might be trading at a premium, our DCF model offers a different perspective. It estimates the fair value at ¥7,226 per share, which is well above the current price. This implies Kadokawa could actually be undervalued. Might the current pessimism be overdone?

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 Kadokawa 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 898 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 Kadokawa Narrative

If you see the numbers differently or want to test your own perspective, you can easily build your own investment view in just a few minutes with Do it your way.

A great starting point for your Kadokawa research is our analysis highlighting 2 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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