Unicharm (TSE:8113) Valuation Check as New Dry Washing Diaper Recycling Method Rolls Out

Unicharm (TSE:8113) just unveiled its Dry Washing Method for diaper recycling, slashing water use to about 1/50th of current processes. This targeted sustainability move could reshape its long term growth narrative.

See our latest analysis for Unicharm.

Despite this technological leap, Unicharm’s 1 year total shareholder return of around minus 31 percent and year to date share price return near minus 29 percent suggest sentiment has been weak. Any sustained excitement around Dry Washing could mark an inflection rather than a continuation of recent downbeat momentum.

If Unicharm’s sustainability push has you rethinking where growth might show up next in consumer staples, it could be worth exploring fast growing stocks with high insider ownership.

With the share price down sharply despite steady earnings growth and a sizable discount to analyst targets, are investors being overly pessimistic on Unicharm’s new recycling push, or is the market already baking in tomorrow’s growth?

Price to Earnings of 18.8x: Is it justified?

Unicharm trades on a price to earnings ratio of 18.8 times at a last close of ¥899, which screens as slightly expensive versus peers despite recent share price weakness.

The price to earnings multiple compares what investors pay today for each unit of current earnings. This is a key yardstick for steady, cash generative consumer staples companies like Unicharm.

In Unicharm’s case, the stock looks rich against the Asian Household Products industry average of 17.8 times and peer averages, suggesting the market is still assigning a premium for its franchise and brand strength. However, our fair price to earnings estimate of 27.4 times points to meaningful upside if sentiment and growth expectations revert closer to long term norms.

Relative to the broader industry, that gap between the current 18.8 times and the fair 27.4 times implies the valuation could shift sharply if investors regain confidence in margins and earnings growth.

Explore the SWS fair ratio for Unicharm

Result: Price to Earnings of 18.8x (UNDERVALUED)

However, investors still face risks, including slower than expected uptake of Dry Washing and prolonged weak sentiment if earnings growth or margin recovery disappoints.

Find out about the key risks to this Unicharm narrative.

Another View: What Does Our DCF Say?

Our DCF model paints a stronger value story, putting Unicharm’s fair value near ¥1,547.91 versus today’s ¥899, implying roughly 42 percent upside. If cash flows are even roughly right, is the market underestimating the pay off from recycling and steady staples demand?

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 Unicharm 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 913 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 Unicharm Narrative

If this perspective does not fully match your view, or you prefer digging into the numbers yourself, you can build a custom take in minutes, Do it your way.

A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding Unicharm.

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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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