Digital Hearts Holdings Co Ltd

Digital Hearts has a market price of 733 JPY per share, with a market capitalization of 16.35 billion JPY. The company's price-to-earnings ratio of 64.58 and price-to-book ratio of 1.94 suggest a relatively high valuation compared to its book value and earnings. The enterprise value to EBITDA ratio of 28.38 indicates a premium valuation relative to its earnings before interest, taxes, depreciation, and amortization.

The company's profitability is modest, with a return on equity of 3.01% and a return on assets of 1.20%. These figures are below the industry median for IT Services & Consulting, which typically sees ROE and ROA in the 8-12% range. The operating margin of 5.77% (calculated from operating income of 584.27 million JPY on revenue of 10.12 billion JPY) is also below the industry median of 10-15%.

Digital Hearts' revenue is concentrated in IT services, with no disclosed geographic breakdown in the latest financials. The company's exposure to a single business line increases its vulnerability to market shifts in the IT services sector. No material geographic diversification is evident from the available data.

The company's growth trajectory is mixed. Revenue in the latest period was 10.12 billion JPY, with analysts estimating 39.49 billion JPY for the next fiscal year. This suggests a significant growth expectation, though the company's net income of 253.08 million JPY and operating income of 584.27 million JPY indicate a need for improved profitability to support such growth.

Risk factors include a medium liquidity risk, with a current ratio of 1.12 and a debt-to-equity ratio of 0.84. The company has 6.86 billion JPY in cash and equivalents but also 7.10 billion JPY in long-term debt, resulting in a net cash position that is negative after subtracting total debt. Dilution risk is low, with no significant dilution potential identified in the latest filings.

Recent events include the release of the latest financial results, which showed a lower-than-expected EPS of 28.25 JPY compared to the mean estimate of 85.28 JPY. This discrepancy may impact investor sentiment and could lead to downward revisions in future earnings expectations.

Cash conversion ratio of 6.95 is best-in-class compared to the cohort median of 1.0, highlighting robust cash generation.

Revenue grew at a 15.1% compound annual growth rate over four years, showing consistent top-line expansion.

Debt-to-equity ratio of 0.84 is in the bottom quartile versus the cohort median of 0.12, signaling high leverage risk.

Net margin of 2.5% trails the cohort median of 3.9%, suggesting weaker profitability relative to industry peers.

Return on equity of 3.0% underperforms the cohort median of 4.3%, indicating inefficient use of shareholder capital.

Net income declined at a -10.4% compound annual growth rate over four years, reflecting long-term earnings volatility.

Revenue ¥9.98B, −5,1% YoY; Operating income −11,0% YoY.

• ▍Revenue ¥9.98B, −5,1% YoY
• ▍Operating income −11,0% YoY
• ▍Net income −27,4% YoY
• ▍Net margin 6.7%

Revenue ¥9.73B, −3,4% YoY; Operating income −17,7% YoY.

• ▍Revenue ¥9.73B, −3,4% YoY
• ▍Operating income −17,7% YoY
• ▍Net income +20,8% YoY
• ▍Net margin 3.0%

Revenue ¥9.38B, −4,6% YoY; Operating income +113,3% YoY.

• ▍Revenue ¥9.38B, −4,6% YoY
• ▍Operating income +113,3% YoY
• ▍Net income +119,0% YoY
• ▍Net margin 4.9%

Revenue ¥9.33B, −7,8% YoY; Operating income −212,8% YoY.

• ▍Revenue ¥9.33B, −7,8% YoY
• ▍Operating income −212,8% YoY
• ▍Net income −392,5% YoY
• ▍Net margin -7.9%

Revenue ¥10.51B; Operating income ¥1.01B.

• ▍Revenue ¥10.51B
• ▍Operating income ¥1.01B
• ▍Net margin 8.7%

Revenue ¥10.07B; Operating income ¥523.5M.

• ▍Revenue ¥10.07B
• ▍Operating income ¥523.5M
• ▍Net margin 2.4%

Revenue ¥9.84B; Operating income ¥331.9M.

• ▍Revenue ¥9.84B
• ▍Operating income ¥331.9M
• ▍Net margin 2.2%

Revenue ¥10.12B; Operating income ¥584.3M.

• ▍Revenue ¥10.12B
• ▍Operating income ¥584.3M
• ▍Net margin 2.5%

Revenue ¥39.75B, +2,5% YoY; Operating income +44,6% YoY.

• ▍Revenue ¥39.75B, +2,5% YoY
• ▍Operating income +44,6% YoY
• ▍Net income +255,8% YoY
• ▍Free cash flow +1 106,5% YoY
• ▍Net margin 1.6%

Revenue ¥38.79B, +6,2% YoY; Operating income −53,8% YoY.

• ▍Revenue ¥38.79B, +6,2% YoY
• ▍Operating income −53,8% YoY
• ▍Net income −77,9% YoY
• ▍Free cash flow −107,7% YoY
• ▍Net margin 0.5%

Revenue ¥36.52B, +25,1% YoY; Operating income −32,2% YoY.

• ▍Revenue ¥36.52B, +25,1% YoY
• ▍Operating income −32,2% YoY
• ▍Net income −55,0% YoY
• ▍Free cash flow −68,7% YoY
• ▍Net margin 2.2%

Revenue ¥29.18B, +28,7% YoY; Operating income +85,0% YoY.

• ▍Revenue ¥29.18B, +28,7% YoY
• ▍Operating income +85,0% YoY
• ▍Net income +82,5% YoY
• ▍Free cash flow +166,2% YoY
• ▍Net margin 6.1%