Nippon Steel (TSE:5401): Is the Current Valuation Overlooked After Recent Share Price Uptick?

Nippon Steel (TSE:5401) shares have seen noticeable movement over the past day, with a gain of nearly 3%. Investors may be curious about what is driving the recent action in the stock.

See our latest analysis for Nippon Steel.

While Nippon Steel’s 1-day share price return of 2.73% is impressive, it follows a period of sideways movement. The share price has changed little over the past month and is still behind year-to-date. However, looking at the long game, its three-year total shareholder return of more than 60% and five-year return topping 230% show that long-term holders have been rewarded, even as recent momentum remains mixed.

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The question now is whether Nippon Steel’s recent gains reflect a new phase of growth that is already fully priced in, or if there is still meaningful value left for investors to capture.

Price-to-Sales Ratio of 0.4x: Is it justified?

Nippon Steel’s price-to-sales ratio sits at a low 0.4x as of the last close, signaling the market may not be fully appreciating its top-line scale. This level stands out not only against historical valuation ranges but also relative to its peers and the broader sector.

The price-to-sales ratio measures how much investors are willing to pay for each unit of the company's revenue. In capital-intensive sectors like steel, where margins can fluctuate and profits are volatile, this metric helps compare companies on a revenue basis when earnings are negative or unstable.

This low multiple hints that the market may be discounting near-term profitability struggles or is cautious about the sustainability of recent growth. However, Nippon Steel is trading well below both the peer average (1.3x) and its estimated fair price-to-sales ratio (0.9x), suggesting considerable upside if market sentiment shifts or fundamentals improve.

Compared to the broader JP Metals and Mining industry’s average price-to-sales ratio of 0.4x, Nippon Steel matches the sector but significantly trails the peer set. Regression-based models indicate the market could move closer to a 0.9x multiple if performance trends hold or sentiment turns more optimistic.

Explore the SWS fair ratio for Nippon Steel

Result: Price-to-Sales of 0.4x (UNDERVALUED)

However, risks remain if revenue momentum falters or near-term losses persist, as this could undermine the current case for undervaluation.

Find out about the key risks to this Nippon Steel narrative.

Story Continues

Another View: Our DCF Model Suggests Even Deeper Value

Looking beyond headline ratios, our SWS DCF model estimates Nippon Steel's fair value at ¥1,055.78. This is over 42% higher than today's share price. This method focuses on future cash flows instead of current sales. Could the market be missing a bigger opportunity here?

Look into how the SWS DCF model arrives at its fair value.5401 Discounted Cash Flow as at Nov 2025

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Nippon Steel 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 870 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Nippon Steel Narrative

If you think the story could unfold differently, or you’d rather dig into the numbers yourself, building your own view takes just a few minutes. Do it your way.

A great starting point for your Nippon Steel research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.

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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.

Companies discussed in this article include 5401.T.

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