Shionogi (TSE:4507) Infectious Disease Progress Keeps Valuation Questions In Play

Why Shionogi stock is back on infectious disease investors’ radar

Shionogi (TSE:4507) has drawn fresh attention after Japan approved a pediatric regimen for its COVID-19 drug XOCOVA, and partner F2G reported positive Phase 3 OASIS results for olorofim, supporting progress in infectious disease treatments.

See our latest analysis for Shionogi.

Despite the steady stream of infectious disease updates, Shionogi’s short term share price performance has been weak. It has a 30 day share price return of 9.11% and a 90 day share price return of 21.62%, while its 1 year total shareholder return of 11.28% points to stronger longer term sentiment.

If Shionogi’s recent infectious disease progress has your attention, it can be useful to scan other healthcare related opportunities through our focused screener of 7 healthcare AI stocks

With Shionogi trading at ¥2,755 and various valuation indicators pointing to a possible discount, the key question for you is whether this is an overlooked opportunity or whether the market already reflects its infectious disease pipeline potential.

Price to earnings of 11.4x for Shionogi stock, is it justified?

On simple earnings metrics, Shionogi is priced at a P/E of 11.4x, which screens as inexpensive compared with both its own fair multiple estimate and sector peers at the current ¥2,755 share price.

The P/E ratio compares the company’s share price to its earnings per share and is a common way investors gauge how much they are paying for current profits. For a mature pharmaceutical company like Shionogi, where earnings and cash flows matter more than early stage revenue targets, this multiple is a core reference point for many investors assessing value.

According to the data, Shionogi is considered good value not only relative to the estimated fair P/E of 23x, but also compared with the peer average of 19.2x and the broader Japan pharmaceuticals industry average of 16.1x. That is a sizeable gap that suggests the current market price assigns a lower earnings multiple than both what regression based modelling indicates could be reasonable and what similar companies are trading on today.

Explore the SWS fair ratio for Shionogi

Result: Price-to-earnings of 11.4x (UNDERVALUED)

However, Shionogi’s recent 30 day share price decline of 9.11% and 90 day decline of 21.62% suggest sentiment can shift quickly if earnings or pipeline updates disappoint.

Find out about the key risks to this Shionogi narrative.

Another view on Shionogi’s valuation

While the current P/E of 11.4x suggests Shionogi is inexpensive, the SWS DCF model points to a different yardstick. On that view, the stock at ¥2,755 is trading below an estimated future cash flow value of ¥5,095.25, which also screens as undervalued and raises questions about what risks the market is pricing in.

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 Shionogi 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 16 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

Does the mix of potential upside and risk around Shionogi feel balanced to you, or tilted one way? Take a closer look at the underlying data and recent developments, then weigh both sides of the story with 6 key rewards and 1 important warning sign

Looking for more investment ideas beyond Shionogi?

If Shionogi has sharpened your interest, do not stop here. Use targeted stock ideas to compare, cross check and strengthen your overall portfolio decisions.

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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