Assessing Alps Alpine’s Valuation After The New Nexalus Liquid Cooling Partnership

Why the Nexalus partnership matters for Alps Alpine (TSE:6770)

Nexalus has named Alps Alpine (TSE:6770) its official manufacturing and systems integration partner for next generation liquid cooling and ICT infrastructure solutions, centered on a global, scalable platform anchored in Ireland.

See our latest analysis for Alps Alpine.

Alps Alpine's ¥2,330.5 share price comes after a strong 30 day share price return of 16.38% and a 1 year total shareholder return of 55.84%, suggesting recent momentum has been building alongside developments like the Nexalus manufacturing partnership.

If this Nexalus tie up has you thinking more broadly about digital infrastructure, it could be a good moment to scan 34 AI infrastructure stocks as potential next ideas to research.

With the shares at ¥2,330.5 after strong recent returns, Alps Alpine now trades above the average analyst price target and implied intrinsic value. Is this Nexalus-driven momentum a fresh opportunity, or is future growth already reflected in the price?

Price-to-Earnings of 8.8x: Is it justified?

On a P/E of 8.8x, Alps Alpine looks inexpensive relative to both its own peer group and the wider Japanese market, even after the strong share price run to ¥2,330.5.

The P/E multiple tells you how much investors are currently paying for each unit of earnings, so for Alps Alpine that is 8.8 times its net income. For an electronics manufacturer with ¥1,010,980.0 revenue and ¥51,887.0 net income, this is a key shorthand for how the market is weighing its earnings power against other options.

Analysts currently see revenue growing at around 0.3% per year and forecast an average 15.4% annual earnings decline over the next three years, which can help explain why the market is not attaching a richer multiple. At the same time, Alps Alpine scores as good value against peers on several checks. Its P/E is well below the peer average of 39.8x and below the broader JP market P/E of 15.2x, which indicates the current pricing is lower than both benchmarks and can be compared with a fair P/E estimate of 12.1x if conditions improve.

Relative to the Japanese electronics industry, where the average P/E is 16.9x, Alps Alpine’s 8.8x looks heavily discounted. Compared to the estimated fair P/E of 12.1x, the current multiple is also lower, which highlights that the current market valuation is below that fair ratio if sentiment or earnings expectations shift.

Explore the SWS fair ratio for Alps Alpine

Result: Price-to-Earnings of 8.8x (UNDERVALUED)

However, you also need to weigh risks such as analysts forecasting a 15.4% annual earnings decline and the shares trading above the average analyst price target.

Find out about the key risks to this Alps Alpine narrative.

Another View, using our DCF model

While the 8.8x P/E points to good value, our DCF model paints a different picture. On that basis, Alps Alpine at ¥2,330.5 sits well above an estimated future cash flow value of ¥951.21, which implies the recent excitement could already be priced in.

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 Alps Alpine 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 19 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Given the mix of positives and concerns in this story, it makes sense to review the full data set yourself and then move quickly to your own judgment. You can start with 3 key rewards and 3 important warning signs.

Looking for more investment ideas?

If this Nexalus story has sharpened your appetite for opportunities, do not stop here, use the screener to line up your next candidates before the market moves on.

• Target higher income potential by reviewing 14 dividend fortresses that could help anchor your portfolio with steady cash returns.
• Hunt for mispriced opportunities using our 19 high quality undervalued stocks that highlight companies trading below what their fundamentals may suggest.
• Prioritise resilience with the 53 resilient stocks with low risk scores, focusing on businesses that score well on financial strength and risk checks.

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