Shionogi (TSE:4507): Revisiting Valuation as Higher Profit Outlook Follows Cost Gains and Efficiency Upgrades

Shionogi (TSE:4507) just raised its earnings outlook for the fiscal year ending March 2026, citing stronger profits from tight cost management and gains in other income. This comes even as domestic revenue falls short.

See our latest analysis for Shionogi.

Shionogi has steadily gained momentum this year, with its share price climbing over 18% year-to-date. Strategic moves, including the recent reorganization tied to its acquisition of Japan Tobacco’s pharmaceutical arm and an increased second-quarter dividend, appear to be building confidence among investors. Notably, the company has delivered a 24% total shareholder return over the past year and a strong 55% total return over the last five years, suggesting long-term shareholders have been well rewarded.

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With Shionogi’s strong long-term returns and an earnings outlook that defies domestic headwinds, investors are left to consider whether there is still value left in the stock or if the market has already factored in its future growth.

Price-to-Earnings of 13x: Is it justified?

Shionogi’s shares are priced at a price-to-earnings ratio of 13x, coming in below both the pharmaceuticals industry average and its peer group. This indicates the market might be underestimating its future potential relative to competitors. At its last close of ¥2,608, the stock appears attractively valued from a multiple perspective.

The price-to-earnings ratio (PE) measures the company’s share price relative to its per-share net earnings and is widely used to assess whether a stock is undervalued or overvalued compared to sector standards. For pharmaceutical companies like Shionogi, the PE can signal market expectations of long-term earnings growth or potential challenges from competition and regulation.

In Shionogi’s case, a 13x PE stands out as lower than both the Japan Pharmaceuticals industry average of 13.8x and the peer average of 23.6x. This means investors are paying less for each yen of current earnings than they would for other major players in the sector. The estimated fair PE stands at 20.5x, which suggests that if sentiment shifts, there may be room for the market to re-rate Shionogi’s shares higher.

Explore the SWS fair ratio for Shionogi

Result: Price-to-Earnings of 13x (UNDERVALUED)

However, risks such as evolving competition and sector regulation could impact Shionogi's future returns and challenge the current narrative of undervaluation.

Find out about the key risks to this Shionogi narrative.

Another View: Discounted Cash Flow Says Shares Are Deeply Undervalued

While the price-to-earnings approach points to undervaluation, our DCF model paints an even starker picture. According to this method, Shionogi is trading at nearly a 47% discount to its estimated fair value. This implies much greater upside than multiples alone suggest. Could the market be too cautious? Or is there a hidden risk the DCF is not capturing?

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 Shionogi 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 860 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 Shionogi Narrative

If you prefer a hands-on approach or want to challenge this perspective, you can put together your own investment thesis in just a few minutes. Do it your way.

A good starting point is our analysis highlighting 5 key rewards investors are optimistic about regarding Shionogi.

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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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