Capital Markets company Nomura is took Wall Street by surprise Friday, falling to $3.8 and marking a -3.1% change compared to the S&P 500, which moved -1.0%.
NMR currently sits within range of its analyst target price of $3.76, which implies that its price may remain stable for the near future. Over the last year, Nomura has underperfomed the S&P 500 by -9.0%, moving 2.7%.
Nomura Holdings, Inc. provides various financial services to individuals, corporations, financial institutions, governments, and governmental agencies worldwide. The company is included in the financial services sector, which includes a wide variety of industries such as credit services, mortgage, banking, and insurance. Owing to this variety and the fast pace of innovation within these industries, investors may struggle to make sense of this sector.
As evidenced by the financial meltdown of 2008, seemingly healthy financial services companies — from insurers to investment banks — may see their market value plunge to zero in a matter of months. While the financial crash was likely a once-in-a-generation event, it highlights the volatility that is inherent to the sector. Financial innovation creates opportunities, but also new types of risk that investors and even the companies themselves may not fully understand.
Nomura's trailing 12 month P/E ratio is 19.0. It does not have a forward P/E ratio because the company does not issue guidance. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the finance sector has an average P/E ratio of 14.34, and the average for the S&P 500 is 15.97.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Nomura's free cash flow, which was $-1145915000000.0 as of its most recent annual report. The balance of cash flows represents the capital that is available for re-investment in the business, or for payouts to equity investors as dividends. The company's average cash flow over the last 4 years has been $-575687250000.0 and they've been growing at an average rate of -50.6%. NMR's weak free cash flow trend shows that it might not be able to sustain its dividend payments, which over the last 12 months has yielded 433.7% to investors. Cutting the dividend can compound a company's problems by causing investors to sell their shares, which further pushes down its stock price.
Nomura is likely overvalued at today's prices because it has an inflated P/E ratio, no published P/B ratio, and negative and highly variable cash flows with a downwards trend. The stock has poor growth indicators because of its average net margins with a negative growth trend, and a negative PEG ratio. We hope this preliminary analysis will encourage you to do your own research into NMR's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
