PeptiDream leads trio of value stocks on Japanese stock exchange for investor scrutiny

Against the backdrop of a weakening yen and expectations of monetary policy adjustments, Japan’s equity markets have proven resilient, with major indices posting significant gains. This environment may provide investors with an opportunity to consider undervalued stocks that could benefit from the current economic situation.

The 10 most undervalued stocks in Japan based on cash flows

Click here to see the full list of 93 stocks from our Undervalued Japanese Stocks Based on Cash Flow screener.

Let’s review some notable picks from our reviewed stocks

Overview: PeptiDream Inc. is a biopharmaceutical company focused on the discovery and development of restricted peptides, small molecules and peptide-drug conjugate therapeutics with a market capitalization of approximately 323.24 billion yen.

Operations: The company generates its revenue primarily from its biopharmaceutical activities and focuses on the development of unique therapeutic peptides and small molecule drugs.

Estimated discount to fair value: 20.5%

PeptiDream trades at 2453 yen and is considered undervalued. The price is 21.7% below the estimated fair value of 3132.67 yen based on discounted cash flows. Despite expected significant earnings growth of 22.3% annually over the next three years and sales expected to outperform the Japanese market at 10.5% annually, there are concerns due to recent high volatility in the share price and a decline in profit margins from 25.9% to 8.7%. Recent strategic expansions with Novartis and positive progress in clinical trials underline the company’s potential despite financial inconsistencies.

Overview: I-PEX Inc. is a Japanese company specializing in the development, manufacture and distribution of connectors, electronic components, automotive electronic components and semiconductor manufacturing equipment in Japan, China and other parts of Asia, with a market capitalization of 40.66 billion yen.

Operations: The company is mainly engaged in the development, manufacture and sales of connectors, electronic and automotive electronic components and semiconductor manufacturing equipment in Japan, China and other Asian regions.

Estimated discount to fair value: 16.9%

I-PEX Inc. is trading at 2192 yen, 16.7% below its fair value of 2630.11 yen, suggesting a possible undervaluation based on cash flows. While earnings are expected to grow 46.36% annually over the next three years, outpacing the growth of the Japanese market, revenue growth forecasts remain modest at 4.7% per year. The company’s dividend coverage is weak due to significant one-off items affecting earnings quality and a low forecast return on equity of 3%.

Overview: Forum Engineering Inc. specializes in providing human resource management services for mechanical and electrical engineers throughout Japan and has a market capitalization of 49.06 billion yen.

Operations: The company specializes in staffing solutions for the mechanical and electrical engineering industries throughout Japan.

Estimated discount to fair value: 35.8%

Forum Engineering is significantly undervalued at 934 yen, as its market price is 35.7% below its estimated fair value of 1451.7 yen. Despite a less stable dividend history and dilution of shareholders’ shares last year, the company’s earnings are expected to grow 13.2% annually, outperforming the Japanese market average. In addition, its revenue growth forecast of 9.2% per year also exceeds the general Japanese market expectation of 4.2%. However, financial data for less than three years raises concerns about long-term forecasts.

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This Simply Wall St article is of a general nature. We provide commentary based solely on historical data and analyst forecasts, using an unbiased methodology. Our articles are not intended as financial advice. They do not constitute a recommendation to buy or sell stocks, and do not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

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