Nippon Express (TSE:9147): Assessing Valuation Following Major Pharma Logistics Expansion in Indiana

Nippon Express Holdings (TSE:9147) is making headlines after its U.S. subsidiary, MD Logistics, completed a significant renovation at its largest Indiana logistics base. The entire 37,000m² facility is now cGMP-compliant and dedicated to pharmaceutical products.

See our latest analysis for Nippon Express Holdings.

Nippon Express Holdings has attracted attention not just for its logistics expansion but also for its active approach in the market. Most notably, it completed a share buyback program representing nearly 6% of total shares this year. The company's decisive moves, paired with its momentum in the pharmaceutical sector, have resonated with investors, as reflected in its impressive 38.6% year-to-date share price return. Looking at the longer horizon, the 1-year total shareholder return stands at 35.2%, with gains more than doubling over five years. This underscores strong, sustained performance amid shifting industry dynamics.

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With such strong performance and renewed growth initiatives, investors are left wondering if Nippon Express Holdings’ current share price still offers value, or if the market has already accounted for its next phase of growth.

Price-to-Earnings of 28.5x: Is it justified?

Nippon Express Holdings currently trades at a price-to-earnings (P/E) ratio of 28.5x, which is notably higher than both its peer group and industry averages. This elevated multiple raises questions about whether the market is overvaluing the company's near-term earnings or anticipating significant growth ahead.

The P/E ratio measures how much investors are willing to pay for each unit of net earnings. It is a widely used yardstick for evaluating companies in the logistics sector. High multiples can reflect market optimism about future profit growth, but may also flag overheating if they far exceed underlying fundamentals.

At 28.5x, Nippon Express Holdings trades at a substantial premium compared to the Japanese logistics industry average of 15.6x as well as the peer average of 16x. The company’s P/E also surpasses the estimated fair price-to-earnings ratio of 23.2x, a level the market could gravitate toward if expectations recalibrate around fundamentals or sector norms.

Explore the SWS fair ratio for Nippon Express Holdings

Result: Price-to-Earnings of 28.5x (OVERVALUED)

However, slowing revenue growth or weaker profitability could shift sentiment and prompt a market re-rating, especially given the current premium valuation.

Find out about the key risks to this Nippon Express Holdings narrative.

Another View: Deep Value from a DCF Perspective

While the current price-to-earnings multiple makes Nippon Express Holdings look expensive, our DCF model tells a very different story. Using discounted cash flow, the shares appear deeply undervalued and trade around 70% below their fair value estimate. Can two methods really land in such different places?

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 Nippon Express Holdings 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 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 Nippon Express Holdings Narrative

If you have a different perspective or want to dig into the details yourself, you can put together your own view in just minutes. Do it your way

A great starting point for your Nippon Express Holdings research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.

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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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