Tsumura (TSE:4540) Valuation in Focus After Upgraded Earnings and Dividend Outlook

Tsumura (TSE:4540) updated its outlook following stronger-than-expected profits, raising both its earnings and dividend forecasts for this and next fiscal year. The company’s actions highlight growing confidence in its earnings momentum.

See our latest analysis for Tsumura.

Tsumura’s improved outlook has helped steady sentiment after a challenging start to the year. The stock’s 1-month share price return is now at 6.4%, and the three-year total shareholder return has reached 36.6%. While short-term volatility lingered, the recent burst in earnings confidence suggests momentum could be turning in investors’ favor.

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With the stock now trading just below analyst targets and recent upgrades fueling optimism, the question is whether Tsumura remains undervalued or if the recent gains mean the market has already priced in the next wave of growth.

Price-to-Earnings of 10.4x: Is it justified?

Tsumura is trading at a price-to-earnings (P/E) ratio of 10.4x, which currently positions the stock at a discount compared to both peers and broader industry benchmarks. With the last close at ¥3,852, investors may be questioning if the stock is underappreciated relative to its earnings potential.

The P/E ratio illustrates how much investors are willing to pay for each yen of earnings. It serves as a central benchmark in the pharmaceuticals sector for assessing value versus future profit growth. For a company like Tsumura, this measure is particularly useful due to its steady earnings base and established market presence.

Notably, Tsumura’s P/E is below the JP Pharmaceuticals industry average of 15.6x. This indicates it trades at a lower valuation than many competitors. Compared to its estimated fair P/E ratio of 16.5x, the stock is priced well below a level the market could eventually move toward if earnings momentum continues.

Explore the SWS fair ratio for Tsumura

Result: Price-to-Earnings of 10.4x (UNDERVALUED)

However, slowing revenue or profit growth and persistent share price volatility could quickly change investor sentiment. This underlines the need for continued momentum.

Find out about the key risks to this Tsumura narrative.

Another View: DCF Model Checks for Fair Value

While the price-to-earnings ratio suggests Tsumura is undervalued, our SWS DCF model tells a different story. According to our estimates, the stock is actually trading slightly above its calculated fair value of ¥3,791.98. This alternate view challenges the idea that the recent gains are fully supported by fundamentals. Is there more caution warranted, or will earnings continue to surprise?

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 Tsumura 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 917 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 Tsumura Narrative

If you’re not convinced by this analysis or want to dig into the numbers on your own terms, you can quickly craft a personalized view in just a few minutes, so Do it your way.

A great starting point for your Tsumura research is our analysis highlighting 4 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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