<div id="readability-page-1"><div><h3>Key Insights</h3><ul><li> Meidensha's estimated fair value is JP¥7,573 based on 2 Stage Free Cash Flow to Equity </li> <li> Meidensha is estimated to be 26% undervalued based on current share price of JP¥5,620 </li> <li>  The JP¥6,942 analyst price target for 6508 is 8.3% less than our estimate of fair value </li> </ul><p>Today we will run through one way of estimating the intrinsic value of Meidensha Corporation (TSE:6508) by projecting its future cash flows and then discounting them to today's value.  One way to achieve this is by employing the Discounted Cash Flow (DCF) model.  Believe it or not, it's not too difficult to follow, as you'll see from our example!</p><p> We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios.  If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. </p><p>This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.</p><h2> Is Meidensha Fairly Valued? </h2> <p> We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period.  To start off with, we need to estimate the next ten years of cash flows.   Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.  </p><p> Generally we assume that a dollar today is more valuable than a dollar in the future,  so we need to discount the sum of these future cash flows to arrive at a present value estimate: </p><h4> 10-year free cash flow (FCF) estimate </h4><table><tbody><tr><td> </td><td><strong>2026</strong></td><td><strong>2027</strong></td><td><strong>2028</strong></td><td><strong>2029</strong></td><td><strong>2030</strong></td><td><strong>2031</strong></td><td><strong>2032</strong></td><td><strong>2033</strong></td><td><strong>2034</strong></td><td><strong>2035</strong></td></tr><tr><td><strong> Levered FCF (¥, Millions) </strong></td><td>JP¥5.88b</td><td>JP¥4.31b</td><td>JP¥4.07b</td><td>JP¥14.3b</td><td>JP¥18.0b</td><td>JP¥20.7b</td><td>JP¥22.9b</td><td>JP¥24.6b</td><td>JP¥26.0b</td><td>JP¥27.1b</td></tr><tr><td><strong>Growth Rate Estimate Source</strong></td><td>Analyst x2</td><td>Analyst x2</td><td>Analyst x2</td><td>Analyst x2</td><td>Analyst x2</td><td>Est @ 14.98%</td><td>Est @ 10.66%</td><td>Est @ 7.64%</td><td>Est @ 5.53%</td><td>Est @ 4.05%</td></tr><tr><td><strong> Present Value (¥, Millions) Discounted @ 6.7% </strong></td><td>JP¥5.5k</td><td>JP¥3.8k</td><td>JP¥3.4k</td><td>JP¥11.0k</td><td>JP¥13.0k</td><td>JP¥14.0k</td><td>JP¥14.6k</td><td>JP¥14.7k</td><td>JP¥14.5k</td><td>JP¥14.2k</td></tr></tbody></table><p><i>(&#34;Est&#34; = FCF growth rate estimated by Simply Wall St)</i><br/><strong>Present Value of 10-year Cash Flow (PVCF)</strong> = JP¥109b</p><p> The second stage is also known as Terminal Value, this is the business's cash flow after the first stage.  The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 0.6%. We discount the terminal cash flows to today's value at a cost of equity of 6.7%. </p><p><strong>Terminal Value (TV)</strong>= FCF<sub>2035</sub> × (1 + g) ÷ (r – g) = JP¥27b× (1 + 0.6%) ÷ (6.7%– 0.6%) = JP¥448b</p><p><strong>Present Value of Terminal Value (PVTV)</strong>= TV / (1 + r)<sup>10</sup>= JP¥448b÷ ( 1 + 6.7%)<sup>10</sup>= JP¥235b</p><p> The total value, or equity value, is then the sum of the present value of the future cash flows,  which in this case is JP¥344b.  In the final step we divide the equity value by the number of shares outstanding.  Compared to the current share price of JP¥5.6k, the company appears   a touch undervalued    at a 26% discount to where the stock price trades currently.   Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. </p><figure><img height="760" src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/874354-dcf-1-dark-2/1765063571233?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="1706" original-src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/874354-dcf-1-dark-2/1765063571233"/><figcaption>TSE:6508 Discounted Cash Flow December 6th 2025</figcaption></figure> <h2> Important Assumptions </h2><p> We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows.  Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions.  The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance.  Given that we are looking at Meidensha as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt.  In this calculation we've used 6.7%, which is based on a levered beta of 1.157. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. </p> <p><span> Check out our latest analysis for Meidensha </span></p><h3>SWOT Analysis for Meidensha</h3><div><div><p><strong>Strength</strong></p><ul><li>Earnings growth over the past year exceeded the industry.</li></ul> <ul><li>Debt is not viewed as a risk.</li></ul> <ul><li>Dividends are covered by earnings and cash flows.</li></ul> <ul> Dividend information for 6508.</ul> </div><div><p><strong>Weakness</strong></p><ul><li>Dividend is low compared to the top 25% of dividend payers in the Machinery market.</li></ul></div><div><p><strong>Opportunity</strong></p><ul><li>Annual revenue is forecast to grow faster than the Japanese market.</li></ul> <ul><li>Good value based on P/E ratio and estimated fair value.</li></ul> </div><div><p><strong>Threat</strong></p><ul><li> Annual earnings are forecast to grow slower than the Japanese market.</li></ul> <ul> What else are analysts forecasting for 6508?</ul> </div></div><h2> Next Steps: </h2><p> Whilst important, the DCF calculation  shouldn't be the only metric you look at when researching a company.  DCF models are not the be-all and end-all of investment valuation.  Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation.  For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.   What is the reason for the share price sitting below the intrinsic value?   For Meidensha, we've compiled three  further  items  you should look at: </p><ol> <li> <strong>Risks</strong>: For example, we've discovered <strong>2 warning signs for Meidensha</strong> (1 shouldn't be ignored!) that you should be aware of before investing here. </li> <li><strong>Future Earnings</strong>: How does 6508's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.</li><li> <strong>Other High Quality Alternatives</strong>: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! </li> </ol><p>PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the TSE every day. If you want to find the calculation for other stocks just search here.</p></div></div>

6508

<p>Meidensha Corporation's shares (TSE:6508) are estimated to be 26% below their intrinsic value, with a fair value of JP¥7,573 compared to the current price of JP¥5,620. The analysis uses a two-stage DCF model, projecting future cash flows and discounting them to present value. The total equity value is calculated at JP¥344b, indicating undervaluation. Important assumptions include a discount rate of 6.7% and a levered beta of 1.157.</p>

Meidensha Corporation (TSE:6508) Shares Could Be 26% Below Their Intrinsic Value Estimate