Ono Pharmaceutical (TSE:4528): Reassessing Valuation After This Year’s Share Price Rebound

Ono Pharmaceutical (TSE:4528) has quietly pushed higher this month, extending a steady run that contrasts with its weaker multi year record. That shift alone has investors rethinking how they value this Japanese drug maker.

See our latest analysis for Ono Pharmaceutical.

Ono’s recent climb to a ¥2,127.5 share price, backed by a roughly 10 percent 1 month share price return and near 28 percent year to date performance, suggests sentiment is turning more optimistic even as the 3 year total shareholder return remains deeply negative.

If Ono’s shift in momentum has caught your eye, it could be a good moment to scan other Japanese and global drug makers using healthcare stocks as a starting list of ideas.

With shares up strongly this year despite falling sales and profits, and trading only slightly above some fair value estimates, investors now face a key question: is Ono still a buying opportunity, or is the market already pricing in future growth?

Price-to-Earnings of 20.6x: Is it justified?

At ¥2,127.5 per share, Ono Pharmaceutical trades on a price to earnings ratio of 20.6 times, implying a richer valuation than much of its sector.

The price to earnings multiple compares the current share price with the company’s earnings per share. It is a direct gauge of how much investors are paying for each unit of profit, which is especially relevant for a mature, profitable drug maker like Ono.

Ono is viewed as good value against a peer average multiple of 21.3 times, yet looks expensive versus the broader Japanese pharmaceuticals industry at 15.3 times. It also trades above an estimated fair price to earnings level of 18.6 times that our models suggest the market could ultimately gravitate toward as expectations normalise.

Explore the SWS fair ratio for Ono Pharmaceutical

Result: Price-to-Earnings of 20.6x (OVERVALUED)

However, slowing revenues and earnings, as well as a sizeable gap to analyst price targets, could quickly challenge the optimism embedded in Ono’s current valuation.

Find out about the key risks to this Ono Pharmaceutical narrative.

Another View, Fair Value Looks More Supportive

While the price to earnings ratio hints at some overvaluation, our DCF model paints a softer picture, with Ono trading just below its estimated fair value of ¥2,145.85. If cash flows are roughly right, is today’s premium more a cushion than a warning sign?

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 Ono Pharmaceutical 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 902 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 Ono Pharmaceutical Narrative

If you see the story differently, or would rather lean on your own analysis, you can build a tailored view in just minutes using Do it your way.

A great starting point for your Ono Pharmaceutical 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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