3 Japanese Stocks That Could Be Undervalued

Japan’s stock markets have recently experienced sharp declines, with the Nikkei 225 Index falling by 6.0% and the broader TOPIX Index down by 5.6%. Amidst this market turbulence, Japanese technology stocks have been particularly pressured due to continued sell-offs in U.S. mega-cap technology companies. In such a volatile environment, identifying undervalued stocks can be crucial for investors looking to capitalize on potential market inefficiencies. Here are three Japanese stocks that could be considered undervalued based on current market conditions and economic indicators.

Top 10 Undervalued Stocks Based On Cash Flows In Japan

Name	Current Price	Fair Value (Est)	Discount (Est)
Plus Alpha ConsultingLtd (TSE:4071)	¥1916.00	¥3670.48	47.8%
Yokowo (TSE:6800)	¥1964.00	¥3889.85	49.5%
Sumco (TSE:3436)	¥2493.50	¥4730.02	47.3%
Cyber Security Cloud (TSE:4493)	¥2174.00	¥4298.21	49.4%
Micronics Japan (TSE:6871)	¥6000.00	¥11787.06	49.1%
Visional (TSE:4194)	¥7880.00	¥15033.63	47.6%
SBI ARUHI (TSE:7198)	¥946.00	¥1872.19	49.5%
Macromill (TSE:3978)	¥884.00	¥1698.84	48%
Japan Tissue Engineering (TSE:7774)	¥627.00	¥1196.93	47.6%
Atrae (TSE:6194)	¥879.00	¥1716.31	48.8%

Click here to see the full list of 97 stocks from our Undervalued Japanese Stocks Based On Cash Flows screener.

Let's review some notable picks from our screened stocks.

TORIDOLL Holdings (TSE:3397)

Overview: TORIDOLL Holdings Corporation, with a market cap of ¥343.77 billion, operates and manages restaurants both in Japan and internationally through its subsidiaries.

Operations: TORIDOLL Holdings Corporation generates revenue from three main segments: Marugame Seimen (¥114.86 billion), Overseas Business (¥88.64 billion), and Domestic Others (¥28.46 billion).

Estimated Discount To Fair Value: 37.9%

TORIDOLL Holdings is trading at ¥3937, significantly below its estimated fair value of ¥6337.63. Earnings are expected to grow 27.68% per year, outpacing the JP market's 8.9%. Recent earnings guidance for FY ending March 2025 projects revenue of ¥265 billion and operating profit of ¥14.1 billion, supporting strong cash flow potential despite a forecasted low return on equity (12.3%) in three years.

• In light of our recent growth report, it seems possible that TORIDOLL Holdings' financial performance will exceed current levels.
• Take a closer look at TORIDOLL Holdings' balance sheet health here in our report.

Sumitomo Chemical Company (TSE:4005)

Overview: Sumitomo Chemical Company, Limited operates globally in various sectors including chemicals and plastics, energy and functional materials, IT-related chemicals, health and crop sciences, pharmaceuticals, with a market cap of ¥636.35 billion.

Operations: The company's revenue segments include Essential Chemicals (¥779.44 billion), Health and Agriculture Related Business (¥552.01 billion), Information Electronic Chemistry (¥414.60 billion), Energy & Functional Materials (¥317.41 billion), and Pharmaceuticals (¥342.74 billion).

Estimated Discount To Fair Value: 27.2%

Sumitomo Chemical Company is trading at ¥388.8, well below its estimated fair value of ¥534.4, indicating it may be undervalued based on cash flows. Despite being dropped from several S&P indices in June 2024, the company has formed strategic alliances to commercialize innovative technologies and expects revenue of ¥2.67 trillion for FY ending March 2025. However, its return on equity is forecasted to be low (8.1%) in three years, and dividends are not well covered by earnings or free cash flows.

• The growth report we've compiled suggests that Sumitomo Chemical Company's future prospects could be on the up.
• Click here to discover the nuances of Sumitomo Chemical Company with our detailed financial health report.

Trend Micro (TSE:4704)

Overview: Trend Micro Incorporated develops and sells security-related software for computers and related services in Japan and internationally, with a market cap of ¥945.05 billion.

Operations: The company's revenue segments include security-related software and related services for computers, both domestically and internationally.

Estimated Discount To Fair Value: 13.1%

Trend Micro is trading at ¥7249, below its estimated fair value of ¥8340.35, suggesting it could be undervalued based on cash flows. Despite a decline in profit margins from 11.9% to 5.9%, the company's earnings are forecasted to grow significantly at 22.45% annually over the next three years, outpacing the Japanese market's growth rate of 8.9%. Recent share buybacks and innovative AI security solutions highlight its commitment to shareholder value and technological advancement.

• Our growth report here indicates Trend Micro may be poised for an improving outlook.
• Dive into the specifics of Trend Micro here with our thorough financial health report.

Turning Ideas Into Actions

• Click here to access our complete index of 97 Undervalued Japanese Stocks Based On Cash Flows.
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Ready For A Different Approach?

• Explore high-performing small cap companies that haven't yet garnered significant analyst attention.
• Diversify your portfolio with solid dividend payers offering reliable income streams to weather potential market turbulence.
• Fuel your portfolio with companies showing strong growth potential, backed by optimistic outlooks both from analysts and management.

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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