Is Nagase (TSE:8012) Undervalued As Its Buyback And Forecast Review Reset Expectations?
Nagase share buyback and earnings forecast review set the stage
Nagase (TSE:8012) has kicked off a new share repurchase program of up to 3,500,000 shares for ¥3,000 million, while the board also met on 6 November to review consolidated earnings forecasts.
Recent momentum for Nagase has cooled, with the share price down 6.43% on the day, 15.08% over the past week, and 10.76% across 30 days. However, year to date share price return remains positive at 9.46%, and longer term total shareholder returns of 23.39% over one year and more than 100% over three years point to a stock that has historically rewarded patient holders more than short term traders.
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After that sharp pullback and with a fresh buyback plan on the table, the real tension for Nagase investors is simple. Does the current valuation still leave enough upside to justify the risk?
Price-to-earnings of 8.6x for Nagase: Is it justified?
On simple earnings terms, Nagase trades on a P/E of 8.6x at a last close of ¥1,070, which sits below both the peer group and the broader JP market multiples implied in the data.
The P/E ratio captures how much investors are paying today for each unit of current profit. For a diversified chemicals and materials trader like Nagase, which reported earnings of ¥50,737 and has a long operating history, this yardstick reflects what the market is willing to pay for its established profit base.
Current figures point to the stock changing hands at a lower earnings multiple than reference points on several levels. Management has delivered 10.3% annual earnings growth over five years and 106% earnings growth over the past year, and the business is described as having high quality earnings. However, forecasts in the statements indicate earnings are expected to decline by an average of 1% a year over the next three years, and a return on equity of 11% is flagged as low. These factors can help explain why the market is not assigning a higher P/E despite this track record.
Relative comparisons are clear. The stock trades at a P/E of 8.6x, while the JP Trade Distributors industry sits at 9.9x, and the peer average is 9.1x. The estimated fair P/E ratio is 12.1x, which is materially higher than where Nagase is currently priced and indicates there may be scope for the earnings multiple to move closer to that fair level if sentiment or expectations change in its favour.
