Is Koryojyuhan Co., Ltd. (TYO:3495) Potentially Undervalued?

Koryojyuhan Co., Ltd. (TYO:3495), might not be a large cap stock, but it saw a decent share price growth in the teens level on the JASDAQ over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Koryojyuhan’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Koryojyuhan

Is Koryojyuhan still cheap?

Great news for investors – Koryojyuhan is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 5.45x is currently well-below the industry average of 13.97x, meaning that it is trading at a cheaper price relative to its peers. Another thing to keep in mind is that Koryojyuhan’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its industry peers, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

What does the future of Koryojyuhan look like?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Koryojyuhan's earnings over the next few years are expected to increase by 29%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? Since 3495 is currently trading below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With an optimistic profit outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on 3495 for a while, now might be the time to make a leap. Its buoyant future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy 3495. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed assessment.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 3 warning signs for Koryojyuhan and we think they deserve your attention.

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This article by Simply Wall St is general in nature. 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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