Analyzing Kyowa Kirin (TSE:4151) Valuation in Light of Recent Share Price Momentum

Kyowa Kirin (TSE:4151) shares have shown some movement over the past month, catching the interest of investors who watch Japan’s pharmaceuticals sector. Recent trading trends present a window to consider how the company’s fundamentals are aligning today.

See our latest analysis for Kyowa Kirin.

Kyowa Kirin’s share price has posted a 4.55% gain over the past month, hinting at renewed interest following a sluggish stretch earlier this year. While short-term momentum is building, the 1-year total shareholder return remains negative at -5.36%, highlighting the challenges of translating recent optimism into longer-term gains.

Curious to see what’s happening elsewhere in healthcare? It’s an ideal moment to explore other innovative companies in the sector. See the full list for free.

With fundamentals showing mixed signals and shares trading at a moderate discount to analyst targets, the key question is whether Kyowa Kirin is an undervalued opportunity or if the market already anticipates the company’s future growth.

Price-to-Earnings of 34.7x: Is it justified?

Kyowa Kirin’s shares currently trade on a price-to-earnings (P/E) ratio of 34.7x, a premium compared to both industry peers and its own fair value estimate. With the last close at ¥2,424.5, the stock appears firmly on the expensive end by this valuation yardstick.

The P/E ratio is a classic yardstick for judging how much investors are willing to pay for each unit of earnings. For pharmaceutical companies, where earnings can be volatile and growth opportunities vary, a high P/E suggests the market is factoring in strong future profit growth or unique competitive advantages.

However, Kyowa Kirin’s P/E is more than double the peer average (15.2x) and the broader Japanese Pharmaceuticals sector (14.9x). Regression analysis indicates the fair level should be much lower, at 22.8x, which hints the market is pricing in expectations that may require major execution and growth to justify. Investors should carefully consider whether the current optimism is warranted or if the price may converge towards the fair ratio.

Explore the SWS fair ratio for Kyowa Kirin

Result: Price-to-Earnings of 34.7x (OVERVALUED)

However, slowing multi-year returns and persistent volatility in earnings growth could present challenges to the current bullish sentiment surrounding Kyowa Kirin’s valuation.

Find out about the key risks to this Kyowa Kirin narrative.

Another View: What Does Our DCF Model Say?

While the price-to-earnings ratio suggests Kyowa Kirin shares are expensive compared to peers, our DCF model arrives at the opposite conclusion. The SWS DCF model indicates the stock is trading at a 54% discount to its estimated fair value. Could the market be underestimating Kyowa Kirin’s long-term upside, or is the DCF being too optimistic?

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 Kyowa Kirin 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 878 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 Kyowa Kirin Narrative

If you prefer to dig deeper or think the story deserves a different take, you can easily craft your own view in just a few minutes. Do it your way

A great starting point for your Kyowa Kirin research is our analysis highlighting 2 key rewards and 2 important warning signs 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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