First published on February 18th 2012
When I added the Japanese stock market to the NEONOMIC stock finder I was immediately faced with a huge number of new companies that appeared to be undervalued. It led me to think that the overall Japanese stock market could be very undervalued, which I wrote about in January 2012 in the edition Are Japanese stocks really 300% undervalued?
One of the first stocks that appeared on the stock finder was mobile communications business NTT Docomo. Have I found value in Japan? Let’s have a look…
Analysts see a bright future
NTT Docomo is currently valued at almost 6tr Yen ($76bn) with a share price of 137,000 Yen, which have stayed around this level for the past 3 years. The shares were over 200,000 Yen in 2007, so they have experienced a crash along with the rest of the stock market since the financial crisis.
28 Analysts cover NTT Docomo, of which 18 suggest a buy or outperform rating the rest suggest holding the shares. The median target share price is 160,000 Yen, which is 17% higher than its current level. The highest estimate is 200,000 and lowest is 145,000, which is still almost 6% higher than the current level.
Source: www.ft.com
Overall, all analysts see growth in the share price in the next 12 months. Remember, I personally ignore analyst predictions but include them in these pieces to add balance.
Cash rich and profitable
NTT Docomo passes both the NEONOMIC balance sheet strength test and profitability test. Its asset to equity ratio is 1.4 compared to my threshold of less than 2 and it has achieved this for the past 5 years. Importantly the balance sheet is dominated by high levels of current assets – namely cash and accounts receivable. In fact, NTT Docomo has more current assets than total liabilities. The business does have some debt but the total is more than halve the amount of cash it has in the bank. You can get a safer balance sheet, but not much!
Its profitability is also extremely stable. NTT Docomo has achieved a 5-year average normalised net profit margin of 11% compared to my threshold of greater than 5%.
It has seen a drop in revenue…
