Capital Markets company Nomura is standing out today, surging to $6.6 and marking a 4.4% change. In comparison the S&P 500 moved only 0.0%. NMR is -7.81% below its average analyst target price of $7.16, which implies there is more upside for the stock. Over the last year, Nomura has underperfomed the S&P 500 by 3.1%, moving 9.3%.
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 8.6, based on its trailing EPS of $0.77. The company has a forward P/E ratio of 11.8 according to its forward EPS of $0.56 -- which is an estimate of what its earnings will look like in the next quarter.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the finance sector has an average P/E ratio of 15.92, and the average for the S&P 500 is 29.3.
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Nomura's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2010 | 10,274,000 | 1,131,000 | 9,143,000 | 153.92 |
| 2009 | -16,068,000 | 889,000 | -16,957,000 |
- Average free cash flow: $-3907000000.0
- Average free cash flown growth rate: 234.0 %
- Coefficient of variability (the lower the better):
%
With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in NMR have received an annualized dividend yield of 743.7% on their capital.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.
Nomura's P/B ratio of 0.01 indicates that the market value of the company is less than the value of its assets -- a potential indicator of an undervalued stock. The average P/B ratio of the Finance sector was 1.78 as of the third quarter of 2024.
With a Very low P/E ratio, an exceptionally low P/B ratio., and negative cash flows with an upwards trend, we can conclude that Nomura is probably overvalued at current prices. The stock presents mixed growth prospects because of its weak operating margins with a unknown rate of growth, and a PEG ratio of less than 1.
