Nitori Holdings (TSE:9843): Assessing Valuation After Defying Market Downturn

Nitori Holdings (TSE:9843) climbed 4% during Friday’s session, standing out as Japanese equities broadly declined and the Nikkei 225 slipped 2%. The stock’s upward move suggests investors saw something different in the company.

See our latest analysis for Nitori Holdings.

Nitori Holdings’ strong 4.12% share price return on a challenging day for Japanese equities highlights how investor sentiment is beginning to shift, despite bigger-picture headwinds. While the 1-year total shareholder return remains down over 24%, this kind of session suggests momentum could be building for a turnaround story after a tough stretch.

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But after such a sharp single-day gain, is Nitori Holdings now trading at a discount to its real value, or has the market already started to factor in its potential for future growth and recovery?

Price-to-Earnings of 18.1x: Is it justified?

Nitori Holdings currently trades at a price-to-earnings (P/E) ratio of 18.1x, making it appear like a bargain compared to its peer average but relatively expensive compared with industry benchmarks.

The price-to-earnings ratio measures how much investors are paying for each unit of the company’s past or expected future earnings. It is a common way to gauge whether a stock is priced attractively relative to its profit potential, especially for established retailers.

While the stock is valued well below its peers on this metric, suggesting the market may be underpricing its earnings power, it stands at a premium to the JP Specialty Retail industry, which has a much lower average P/E. Compared to the fair value regression, Nitori’s P/E remains below that level, offering room for market price adjustment if the business delivers earnings growth as anticipated.

Explore the SWS fair ratio for Nitori Holdings

Result: Price-to-Earnings of 18.1x (UNDERVALUED)

However, slower revenue and profit growth or further weakness in Japanese consumer sentiment could quickly challenge expectations for a lasting recovery in Nitori Holdings.

Find out about the key risks to this Nitori Holdings narrative.

Another View: What Does the SWS DCF Model Suggest?

Taking another approach, our DCF model calculates what Nitori Holdings might be worth based on projected future cash flows. On this basis, the current share price is well above the DCF fair value estimate. This raises the question: could the recent optimism already be overstated?

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 Nitori Holdings 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 Nitori Holdings Narrative

If you see things differently or want to dive deeper into the numbers on your own, you can easily put together your own narrative in just a few minutes. Do it your way.

A good starting point is our analysis highlighting 1 key reward investors are optimistic about regarding Nitori Holdings.

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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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