NSD (TSE:9759): Exploring Valuation After Preliminary Sales Reveal Strong Year-on-Year Growth

NSD (TSE:9759) has just unveiled its preliminary unaudited sales figures for October and year-to-date, highlighting solid net sales growth compared to last year. Investors will be watching closely to gauge what this means for the company’s momentum.

See our latest analysis for NSD.

NSD’s impressive preliminary sales update seems to have energized investors, with the share price recording a 9.1% return over the past month and a solid 9.6% year-to-date gain. The company’s 1-year total shareholder return of nearly 10% keeps momentum in positive territory as recent growth trends reinforce the story.

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The question now is whether NSD’s recent surge is justified by its fundamentals or if the stock’s future growth is already fully reflected in the current price. This leaves investors to wonder if there is still a compelling buying opportunity.

Price-to-Earnings of 22.5x: Is it justified?

NSD shares currently trade at a price-to-earnings (P/E) ratio of 22.5x, which positions the stock at a premium compared to both its industry peers and the wider market. With the last close at ¥3,613, investors should consider if this elevated valuation is warranted by company fundamentals and future potential.

The P/E ratio represents how much investors are willing to pay per yen of earnings. For NSD, this figure means the market has set a lofty price for each unit of the company’s profits, often indicating confidence in future growth or consistent performance. In tech-oriented sectors such as software, higher P/E ratios tend to be common as investors anticipate robust expansion and profitability.

Despite this, NSD’s price-to-earnings multiple of 22.5x is actually above the JP IT industry average of 17.2x and slightly higher than the peer group average of 22.4x. When compared to its estimated ‘fair’ P/E ratio of 23.4x, the current market level appears reasonable but leaves limited upside. The fair ratio suggests that while there may be some justification for the current valuation, further appreciation would likely require sustained outperformance or a shift in market sentiment.

Explore the SWS fair ratio for NSD

Result: Price-to-Earnings of 22.5x (ABOUT RIGHT)

However, ongoing valuation concerns and any slowdown in NSD’s annual growth rates could quickly reduce market optimism surrounding the stock’s recent run-up.

Find out about the key risks to this NSD narrative.

Another View: Discounted Cash Flow Model

While the price-to-earnings ratio offers one perspective, the SWS DCF model provides a different angle. According to our DCF analysis, NSD is currently trading above its estimated fair value, which suggests the stock may be overvalued at today’s price. Could the market be pricing in more growth than fundamentals suggest?

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 NSD 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 928 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 NSD Narrative

If you think there's more to the story or want to dig into the numbers yourself, you can easily craft your own perspective in just a few minutes, Do it your way

A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding NSD.

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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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