Nakanishi (TSE:7716) Valuation Check as Board Weighs Treasury Share Cancellation

Nakanishi (TSE:7716) has scheduled a December 19 board meeting to decide on cancelling treasury shares, a capital move that can tighten share supply and subtly lift earnings per share over time.

See our latest analysis for Nakanishi.

The planned cancellation comes after a softer patch for the stock, with the latest 1 year total shareholder return of negative 15.4% reflecting fading momentum despite solid underlying earnings growth.

If Nakanishi's move has you rethinking healthcare exposure, this could be a good moment to explore other specialised medical names through healthcare stocks for fresh ideas.

With earnings still growing, shares trading below analyst targets, and a fresh capital action on the table, the key question now is whether Nakanishi is quietly undervalued or whether the market is already pricing in its next leg of growth.

Price-to-Earnings of 24.6x: Is it justified?

On earnings, Nakanishi trades at a 24.6x price to earnings ratio, which looks rich given the share price drift and recent underperformance.

The price to earnings multiple compares what investors pay today to the company’s current earnings, making it a key yardstick for established, profitable healthcare manufacturers like Nakanishi.

Here, the market is assigning Nakanishi a far higher price to earnings multiple than both the Japan Medical Equipment industry average of 15.9x and the peer average of 17.1x, and even above the estimated fair price to earnings of 21.7x. This suggests investors are already paying up for potential future profit growth and resilience in its specialised dental and surgical equipment niche.

That valuation gap is not small, with Nakanishi looking distinctly more expensive than sector norms and even above the level our fair ratio suggests the market could eventually gravitate toward.

Explore the SWS fair ratio for Nakanishi

Result: Price-to-Earnings of 24.6x (OVERVALUED)

However, investors should watch for slower global dental equipment demand or execution missteps on growth projects, either of which could quickly erode the current valuation premium.

Find out about the key risks to this Nakanishi narrative.

Another View: DCF Points to Undervaluation

While the price to earnings ratio paints Nakanishi as expensive, our DCF model suggests the shares are trading about 26% below an estimated fair value of roughly ¥2,673. If cash flows are closer to right than sentiment, is the current share price a mispricing or a warning?

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 Nakanishi 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 915 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 Nakanishi Narrative

If you would rather dig into the numbers yourself and challenge this view, you can build a personalised thesis in just a few minutes: Do it your way.

A great starting point for your Nakanishi research is our analysis highlighting 4 key rewards and 1 important warning sign 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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