NSD (TSE:9759) Profit Growth Accelerates, Challenging Cautious Valuation Narratives

NSD (TSE:9759) reported robust earnings growth, with net profits rising 14% over the past year and annualized earnings growth averaging 13.3% over the last five years. Net profit margins edged up to 10.9% from 10.4%, and revenue is expected to grow 6.5% per year, comfortably outpacing the broader JP market’s 4.5% projection. With shares trading at ¥3296, above their estimated fair value, and the P/E ratio of 20.6x sitting between industry benchmarks, investors are likely to receive these results positively as profit growth accelerates and margins improve.

See our full analysis for NSD.

Next up, we’ll see how these headline numbers compare to the prevailing narratives, revealing where the consensus stands strong and where the surprises might be hidden.

Curious how numbers become stories that shape markets? Explore Community Narratives

Profit Margin Expansion Supports Quality Growth

• Net profit margins have risen from 10.4% to 10.9% in the most recent year, signaling a modest but positive trend in profitability as the business scales up operations.
• Strong margin performance supports the claim that NSD's earnings are not just growing but improving in quality.
  • With profit increasing by 13.3% annually over five years and an even faster 14% in the last year, the margin improvement stands out as a sign of resilience.
  • Compared to peers, NSD's ability to expand margins while outpacing the market's profit growth rate of 7.8% per year further highlights robust operational discipline.

Valuation Above DCF Fair Value, Still Below Peer Average

• The stock is trading at ¥3296, which is around 12% higher than its DCF fair value of ¥2947.13. Its P/E of 20.6x is above the Japanese IT industry average of 17.3x but below the peer group average of 23.2x.
• Despite paying a premium relative to the industry, investors benefit from consistently strong earnings quality.
  • The premium is not as steep as that of top peers and may be justified given NSD's superior historical and projected growth rates versus the broader market.
  • The P/E remains more reasonable when viewed alongside the attractive dividend and the lack of material risks flagged in the results.

Revenue Growth Outpaces Market Expectations

• Revenue is forecast to grow at 6.5% per year, comfortably above the broader JP market's 4.5% annual growth forecast and supporting a strong outlook for the company's top-line momentum.
• This top-line guidance stands out, elevating investor confidence around future performance.
  • Profit growth is also forecast above the market at 8.3% per year versus 7.8%, reinforcing the idea of durable growth and supporting optimism about NSD's position in a sector with robust demand trends.
  • Management's ability to consistently deliver above-market guidance could set the stage for a favorable re-rating if momentum continues.

Want a deeper dive on what's driving these trends? See the full market and peer breakdown for NSD in the consensus narrative for a balanced perspective. 📊 Read the full NSD Consensus Narrative.

Next Steps

Don't just look at this quarter; the real story is in the long-term trend. We've done an in-depth analysis on NSD's growth and its valuation to see if today's price is a bargain. Add the company to your watchlist or portfolio now so you don't miss the next big move.

See What Else Is Out There

NSD’s shares are trading at a premium to fair value, with its P/E ratio above the industry average. This raises questions about potential overvaluation.

If you’re looking for investment opportunities where valuation metrics are more favorable, check out these 831 undervalued stocks based on cash flows to filter for stocks currently priced below their intrinsic worth.

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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