Undiscovered Gems In Japan Featuring Three Promising Small Caps

The Japanese stock market has recently experienced significant turbulence, with the Nikkei 225 Index falling by 4.7% and the broader TOPIX Index down by 6.0%, partly due to a hawkish stance from the Bank of Japan and disappointing U.S. economic data affecting investor sentiment globally. Despite these challenges, small-cap stocks often present unique opportunities for investors willing to explore beyond the major indices. In this context, identifying promising small-cap companies involves looking for strong fundamentals, innovative business models, and potential for growth even in uncertain economic climates.

Top 10 Undiscovered Gems With Strong Fundamentals In Japan

Name	Debt To Equity	Revenue Growth	Earnings Growth	Health Rating
Business Brain Showa-Ota	0.05%	7.50%	59.43%	★★★★★★
Central Forest Group	NA	5.16%	12.45%	★★★★★★
Intelligent Wave	NA	6.39%	15.16%	★★★★★★
KurimotoLtd	20.73%	3.34%	18.64%	★★★★★★
Uoriki	NA	3.90%	6.15%	★★★★★★
Yashima Denki	2.93%	-2.38%	13.99%	★★★★★★
Toho	82.16%	1.83%	47.38%	★★★★★☆
Techno Ryowa	0.25%	0.34%	0.12%	★★★★★☆
Hakuto	56.93%	8.02%	27.72%	★★★★☆☆
GENOVA	6.23%	24.87%	31.14%	★★★★☆☆

Click here to see the full list of 714 stocks from our Japanese Undiscovered Gems With Strong Fundamentals screener.

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

Digital Arts (TSE:2326)

Simply Wall St Value Rating: ★★★★★★

Overview: Digital Arts Inc. develops and markets internet security software and appliances in Japan, the United States, Europe, and the Asia Pacific, with a market cap of ¥53.64 billion.

Operations: Digital Arts generates revenue primarily from the sale of internet security software and appliances across various regions including Japan, the United States, Europe, and Asia Pacific. The company's cost structure includes expenses related to product development, marketing, and distribution.

Digital Arts has demonstrated impressive earnings growth of 46.2% over the past year, significantly surpassing the software industry's 13.3%. With a price-to-earnings ratio of 12.3x, it trades below the JP market average of 12.6x, indicating good relative value. The company is debt-free and recently repurchased 17,500 shares for ¥67.87 million as part of a broader buyback program aimed at boosting capital efficiency and shareholder returns by September 2024.

• Dive into the specifics of Digital Arts here with our thorough health report.

• Learn about Digital Arts' historical performance.

Daikoku Denki (TSE:6430)

Simply Wall St Value Rating: ★★★★★★

Overview: Daikoku Denki Co., Ltd. is involved in the development, production, and sale of computer and other information system equipment for pachinko halls in Japan, with a market cap of ¥48.68 billion.

Operations: Daikoku Denki generates revenue primarily from the sale of computer and information system equipment for pachinko halls in Japan. The company focuses on both development and production aspects to drive its sales.

Daikoku Denki's earnings surged 189.2% in the past year, outpacing the Leisure industry’s 14.7% growth. The company boasts a debt-free balance sheet and high-quality earnings, with its price-to-earnings ratio at 5.8x compared to Japan's market average of 12.6x. Despite recent share price volatility, Daikoku Denki remains free cash flow positive and has significantly reduced its debt from a debt-to-equity ratio of 11% five years ago to zero today.

• Navigate through the intricacies of Daikoku Denki with our comprehensive health report here.

• Examine Daikoku Denki's past performance report to understand how it has performed in the past.

Miroku Jyoho Service (TSE:9928)

Simply Wall St Value Rating: ★★★★★★

Overview: Miroku Jyoho Service Co., Ltd. offers systems and solutions to tax accounting and CPA firms, their client companies, and small to mid-sized businesses in Japan with a market cap of ¥50.22 billion.

Operations: The company generates revenue primarily from providing systems and solutions to tax accounting and CPA firms, as well as small to mid-sized businesses. The net profit margin has shown variability over the observed periods.

Miroku Jyoho Service, a smaller player in the software industry, has shown robust earnings growth of 18.6% over the past year, outpacing the sector's 13.3%. Their debt to equity ratio improved significantly from 80.2% to 33.4% over five years, indicating prudent financial management. Trading at a good value compared to peers and industry standards, their EBIT covers interest payments 760 times over, reflecting strong profitability and operational efficiency.

• Click here and access our complete health analysis report to understand the dynamics of Miroku Jyoho Service.

• Evaluate Miroku Jyoho Service's historical performance by accessing our past performance report.

Where To Now?

• Gain an insight into the universe of 714 Japanese Undiscovered Gems With Strong Fundamentals by clicking here.
• Got skin in the game with these stocks? Elevate how you manage them by using Simply Wall St's portfolio, where intuitive tools await to help optimize your investment outcomes.
• Take control of your financial future using Simply Wall St, offering free, in-depth knowledge of international markets to every investor.

Want To Explore Some Alternatives?

• Explore high-performing small cap companies that haven't yet garnered significant analyst attention.
• Fuel your portfolio with companies showing strong growth potential, backed by optimistic outlooks both from analysts and management.
• Find companies with promising cash flow potential yet trading below their fair value.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com