Kohoku Kogyo CO., LTD. (TSE:6524) stock have recently dropped significantly. This decline has led investors to wonder if the current price is a good buying opportunity or if it’s too late to invest in this technology components manufacturer.
The stock has lost a notable percentage of its value in the past month and has performed worse than the wider market.
Despite the recent drop, Kohoku Kogyo has strong fundamentals that may attract value investors. The company has exceptional financial health, shown by a low debt-to-equity ratio of 0.9%. This figure comes after the company reduced its debt significantly over the last five years.
Additionally, Kohoku Kogyo has more cash and short-term investments (¥11.1 billion) than total debt (¥208 million), indicating strong liquidity. Its cash flow covers its debt well, and the company earns more in interest than it pays out. Short-term assets comfortably exceed both short-term and long-term liabilities, showing solid financial stability.
Operationally, Kohoku Kogyo has shown consistent earnings growth, averaging 11.6% annually, although this is slightly below the average for the electronic industry. Revenue has also grown steadily at an average of 5.9% per year.
The company enjoys high-quality earnings and has improved its net profit margins, which are currently 20.4%, up from 14.1% last year. Its return on equity is a strong 13.9%. The company keeps a large portion of its profits for reinvestment, indicated by a low dividend payout ratio, which suggests a focus on future growth.
However, the stock’s valuation is mixed. Some metrics suggest it may be overpriced, with price-to-earnings (P/E) ratios estimated in the high 20s or low 30s. Yet, some analyses hint at potential undervaluation.
Some calculations have suggested the stock was overvalued compared to market price, while other data shows it might be near its lowest valuation levels in the past five years.
Analyst views are generally more positive, with average 12-month price targets often around ¥3,500, suggesting a potential rise of over 50% from recent trading levels of about ¥2,300.
In conclusion, whether now is “too late” to buy Kohoku Kogyo depends on an individual investor’s perspective and risk tolerance. The recent steep price drop contrasts sharply with the company’s strong balance sheet and good operating performance.
While valuation signals vary, analyst price targets indicate significant recovery potential. Investors should weigh the short-term price drop against the solid fundamentals and possible long-term gains signaled by analyst forecasts before deciding to invest.
The next earnings report, likely due around May 8, 2025, will be closely monitored for more information about the company’s future.