freee K.K (TSE:4478) Adds Education And Training, Is The Stock Still Cheap?

What the new education and training focus means for freee K.K stock

freee K.K (TSE:4478) plans to add education and training business to its Articles of Incorporation. This move broadens its formal scope beyond core cloud software services ahead of the September 29 shareholder meeting.

Over the past year, freee K.K has seen a 30.35% total shareholder return, while its share price return has been stronger in the shorter term, including a 55.65% 1 month gain and 92.34% 3 month rise, which points to building momentum around recent announcements such as the planned education and training expansion.

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After a 92.34% 3 month surge and a fresh push into education and training, the question for freee K.K now is simple: Is most of the upside already behind the stock, or does valuation still leave room ahead?

Preferred Price-to-Sales Multiple of 5.8x for freee K.K: Is it justified?

On Simply Wall St estimates, freee K.K is trading at a 41.8% discount to an intrinsic value of ¥7,122.45, even after closing at ¥4,145. At the same time, the stock carries a P/S ratio of 5.8x, which sits well above the 1.7x average for the JP Software sector and roughly in line with a peer average of 5.9x.

The P/S multiple compares the company’s market value to its annual revenue and is often used for software stocks where earnings can be more volatile. For freee K.K, the P/S of 5.8x is below an estimated fair P/S of 6.9x, which suggests the current market pricing sits under the level that the SWS fair ratio model indicates the stock could move toward based on its fundamentals.

However, that same 5.8x is also much higher than the broader JP Software industry average of 1.7x, which points to investors assigning a premium to freee K.K compared with the sector overall. The fair ratio work still implies that, relative to its own financial profile, the company trades below where the model indicates a more typical valuation level could be, even though the multiple is rich versus the wider industry.

Explore the SWS fair ratio for freee K.K

Result: Preferred multiple of Price-to-Sales of 5.8x (UNDERVALUED)

However, recent share price swings and a higher P/S than the broader JP software sector mean that any shift in sentiment or revenue momentum could quickly pressure freee K.K.

Find out about the key risks to this freee K.K narrative.

Another view on freee K.K using the SWS DCF model

The first check used revenue and a P/S ratio to frame freee K.K. A second angle from the SWS DCF model values future cash flows at ¥7,122.45 per share, compared with the current ¥4,145 price. That points to an undervalued signal, which raises a simple question for investors: Which story feels more convincing to you?

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 freee K.K 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 25 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this combination of strong recent moves and mixed signals on freee K.K leaves you uncertain, take a closer look at the full picture and consider your options before sentiment shifts. To weigh the current concerns against the potential upside, review the 2 key rewards and 2 important warning signs

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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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