Money Forward (TSE:3994) Valuation in Focus After Divestment of SaaS Marketing Segment and Outlook Revision

Money Forward (TSE:3994) has updated its financial outlook after divesting its Smart Camp subsidiary, shifting away from the SaaS Marketing segment. This move comes as the company redefines its strategic priorities and lowers its medium-term net sales and EBITDA targets.

See our latest analysis for Money Forward.

Shares in Money Forward have taken a hit lately, with a 1-month share price return of -19.9% and a 90-day slide of nearly 29% as investors digested the company's strategic exit from the SaaS Marketing segment. Looking longer term, the 1-year total shareholder return is -9.4%. This performance reflects both shifting growth expectations and recent portfolio changes, suggesting momentum has been fading since earlier highs.

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With growth projections reset and the stock now trading almost 40% below analyst price targets, is this just a pause before a rebound, or is the market already accounting for Money Forward’s new direction and future prospects?

Price-to-Sales of 5.3x: Is it justified?

Money Forward is trading at a price-to-sales (P/S) ratio of 5.3x based on its last close price of ¥4,426. This positions the stock slightly below its peer average and well above the broader software industry benchmark, suggesting a nuanced valuation.

The price-to-sales ratio compares a company's market capitalization to its annual sales, making it particularly relevant for high-growth tech firms that may not yet be profitable. For unprofitable software companies like Money Forward, revenue is the main yardstick investors use to value future potential. A higher P/S could signal strong revenue growth or expectations of profitability ahead.

Compared to its peer group average of 5.7x, Money Forward looks like reasonable value. However, relative to the broader JP Software industry average of just 2.1x, its shares appear expensive. Market sentiment may be factoring in Money Forward’s forecasted profitability and outsized revenue growth prospects. Its fair price-to-sales ratio, estimated at 6.6x, suggests there could still be room for upward re-rating if targets are achieved.

Explore the SWS fair ratio for Money Forward

Result: Price-to-Sales of 5.3x (ABOUT RIGHT)

However, continued slowing revenue growth or persistent losses could undermine confidence and weigh further on Money Forward’s valuation in the near term.

Find out about the key risks to this Money Forward narrative.

Another View: Our DCF Model Weighs In

While Money Forward's price-to-sales suggests reasonable value, our SWS DCF model presents a much more cautious picture. Based on long-term cash flows, the DCF model estimates a fair value of only ¥1,539 per share, which is well below the current market price. Does this mean the market is still too optimistic, or is something in the growth story being overlooked?

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 Money Forward 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 843 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 Money Forward Narrative

If you see Money Forward differently or want to dig deeper into the numbers yourself, you can easily shape your own view and 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 Money Forward.

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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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