Japan Excellent (TSE:8987) Valuation in Focus After Interest Rate Hedge for Long-Term Loans

Japan Excellent (TSE:8987) has decided to fix interest rates on its upcoming long-term loans and has entered into an interest rate swap agreement. This approach is intended to manage rate fluctuations and support financial stability.

See our latest analysis for Japan Excellent.

Japan Excellent’s proactive steps align with a strong stretch of momentum, as reflected in its roughly 28% share price return so far this year and an impressive 36% total shareholder return over the past twelve months. Recent moves to fix borrowing costs and stabilize financing have supported a positive narrative for the stock, with its price steadily moving higher in recent months.

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With returns soaring and financial risks being proactively managed, the key question now is whether Japan Excellent still offers hidden value for new investors or if the market has already factored in all future growth potential.

Price-to-Earnings of 24x: Is it justified?

Japan Excellent is currently trading at a price-to-earnings ratio (P/E) of 24, which is higher than both its listed peers and the broader industry averages. The last close price was ¥152,400. This valuation indicates that the market is placing a premium compared to both local and regional office REITs.

The price-to-earnings ratio measures what investors are willing to pay today for one unit of current earnings. In sectors like real estate, it reflects expectations for earnings quality, growth endurance, and broader industry sentiment. A higher multiple often signals optimism about predictable income streams or strong asset backing.

Despite the premium, Japan Excellent’s P/E of 24 is above the Asian Office REITs industry average of 19.8x and the peer group’s 21.4x. This suggests that investors expect the company to deliver either higher-quality or more resilient earnings than its competitors. However, such a high multiple requires sustained performance. If market conditions change or earnings fall short, the stock could be vulnerable to future corrections.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Earnings of 24x (OVERVALUED)

However, if rate volatility returns or property leasing slows, Japan Excellent’s premium valuation could come under renewed scrutiny from investors.

Find out about the key risks to this Japan Excellent narrative.

Another View: SWS DCF Model Suggests Undervaluation

While Japan Excellent’s elevated price-to-earnings ratio suggests the stock is valued higher than industry averages, our SWS DCF model offers a different perspective. Based on future projected cash flows, the model estimates fair value at around ¥221,446, which is significantly above the current share price. This may indicate that the market has not fully recognized potential value in the stock.

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 Japan Excellent 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 923 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 Japan Excellent Narrative

If you want to dig deeper or approach the data from a different angle, you can easily shape your own investment story in just a few minutes. Do it your way

A great starting point for your Japan Excellent research is our analysis highlighting 1 key reward and 3 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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