Assessing Asahi Group Holdings (TSE:2502)’s Valuation After Recent Share Price Weakness

Asahi Group Holdings (TSE:2502) has been drifting lower over the past month, even as its long term track record and steady earnings growth keep the stock on many income and quality watchlists.

See our latest analysis for Asahi Group Holdings.

That recent 7 day share price return of negative 6.95 percent sits against a mildly positive year to date share price gain and a solid three year total shareholder return of 27.94 percent, suggesting near term momentum is cooling while the longer term story still looks intact.

If Asahi’s recent wobble has you reassessing your watchlist, it could be a good time to scout beyond beverages and explore fast growing stocks with high insider ownership.

With earnings still growing, analysts seeing upside to the share price, and the stock trading at a discount to some valuation models, the question now is whether Asahi is a buy or if the market already reflects its future growth.

Price to Earnings of 13.8x: Is it justified?

Asahi Group Holdings last closed at ¥1,640, and on a price to earnings ratio of 13.8 times it screens as undervalued relative to peers and to some intrinsic value models.

The price to earnings ratio compares the current share price to the company’s earnings per share, so it is a direct snapshot of how much investors are paying for each unit of current profit. For a mature beverages group with a long operating history and steady profitability, this multiple is a key yardstick for how the market prices its earnings power.

On this yardstick, the market appears to be pricing Asahi’s profits cautiously. The shares are trading at 64.8 percent below Simply Wall St’s estimate of fair value, with the SWS DCF model implying a fair value of ¥4,653.68 per share versus the current ¥1,640. In other words, the DCF based valuation suggests investors are paying well below what its projected cash flows could justify if they materialise as expected.

That discount also shows up in peer comparisons. Asahi’s 13.8 times earnings multiple sits well below the Asian beverage industry average of 18.6 times and far under a peer group average of 34.4 times. The estimated fair price to earnings ratio of 24.2 times points to substantial room for the market multiple to move higher if sentiment and fundamentals stay aligned.

Explore the SWS fair ratio for Asahi Group Holdings

Result: Price to Earnings of 13.8x (UNDERVALUED)

However, investors should watch for slower revenue growth and any earnings disappointment, as these could challenge assumptions behind both the discount and analyst targets.

Find out about the key risks to this Asahi Group Holdings narrative.

Another View on Value

Our DCF model also flags Asahi as deeply undervalued, with a fair value estimate of ¥4,653.68 per share versus today’s ¥1,640 price. That gap suggests a wide margin of safety, but it also raises a question: what if the market is pricing in risks the model cannot see?

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 Asahi Group 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 918 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 Asahi Group Holdings Narrative

If your view differs from this assessment or you would rather dive into the numbers yourself, you can craft a full narrative in just a few minutes: Do it your way.

A great starting point for your Asahi Group Holdings research is our analysis highlighting 5 key rewards and 1 important warning sign that could impact your investment decision.

Looking for more investment ideas?

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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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