Encourage Technologies Co., Ltd. (3682) AI Stock Analysis

• Market Cap: ¥4.54B
• Dividend Yield: 2.99%
• Average Volume (3M): 5.93K
• Price to Earnings (P/E): 18.4
• Beta (1Y): 0.46
• Revenue Growth: 1.14%
• EPS Growth: 23.89%
• Country: JP
• Employees: 138
• Sector: Technology
• Sector Strength: 88
• Industry: Information Technology Services
• EPS (TTM): 11.89
• Shares Outstanding: 6,924,200
• 10 Day Avg. Volume: 7,980
• 30 Day Avg. Volume: 5,930
• PEG Ratio: 28.53
• Price to Book (P/B): 1.14
• Price to Sales (P/S): 1.61
• P/FCF Ratio: 12.83
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: N/A
• Price Target Upside: N/A
• Rating Consensus: N/A
• Number of Analyst Covering: 0
• EPS Forecast (FY): N/A
• Revenue Forecast (FY): N/A

• Rating: 72 Outperform
• Price Target: ¥763.00 ▲(10.58% Upside)

The score is primarily supported by a very conservative, debt-free balance sheet and solid profitability with improved FY2025 revenue growth. The main risks are cash flow volatility (including a sharp FY2025 free cash flow drop) and technically overbought signals despite an overall uptrend. Valuation appears reasonable with a supportive dividend yield.

Positive Factors

Debt-Free Balance Sheet

A debt-free balance sheet enhances financial stability and flexibility, allowing the company to invest in growth opportunities without the burden of interest payments.

Revenue Growth Re-Acceleration

Re-accelerating revenue growth indicates a strengthening market position and increased demand for the company's products and services, supporting long-term business expansion.

Solid Profitability

Maintaining solid profitability suggests effective cost management and pricing power, contributing to sustainable earnings and potential reinvestment in the business.

Negative Factors

Volatile Cash Generation

Volatile cash generation can lead to uncertainty in funding operations and growth initiatives, potentially impacting the company's ability to maintain consistent financial health.

Stepped-Down Margins

Declining margins may indicate rising costs or competitive pressures, which could erode profitability and limit the company's ability to invest in future growth.

Inconsistent Cash Flow Conversion

Inconsistent cash flow conversion raises concerns about the reliability of cash returns, which could affect the company's capacity to fund operations and strategic investments.

Encourage Technologies Co., Ltd. Business Overview & Revenue Model

Company Description

Encourage Technologies Co., Ltd. develops, maintains, and sells computer system software products primarily in Japan. The company offers ESS SmartIT Operation products, including ESS REC, a standard tool for monitoring and auditing user system operations; Remote Access Auditor that records the remote user system operations, including capturing desktop screen, such as videos; and ESS AdminGate, which covers security management for servers, including privileged access management, password management, log management, and file transfer controls. It also provides ESS FileGate that provides safe transferring file environment by various type of file sanitization technologies; ESS AdminControl, a privilege ID management product; ESS AdminControl for Client for managing local administrator password; and ID Inspector, which identifies the user who uses Shared ID, such as root/administrators without any customization of application and operation systems. In addition, the company offers ESS AutoAuditor, which is an automated audit for user system operation validation; ESS AutoQuality, a user system operation solution; and Encourage Super Station, a system monitoring solution. Further, it provides BPO and consulting services related to computer operation management. The company was incorporated in 2002 and is headquartered in Tokyo, Japan.

How the Company Makes Money

Encourage Technologies Co., Ltd. generates revenue primarily through the sale and licensing of its software products and IT solutions. The company offers its ERP software and IT management solutions to a wide range of industries, thus ensuring a steady stream of licensing fees and subscription-based revenues. Additionally, Encourage Technologies provides custom software development services, which contribute to its earnings through project-based contracts with clients. The company may also benefit from strategic partnerships and collaborations with other technology firms and business entities, which can enhance its market reach and customer base.

Encourage Technologies Co., Ltd. Financial Statement Overview

Summary

Encourage Technologies Co., Ltd. demonstrates strong financial health with robust revenue growth, excellent profitability margins, and a debt-free balance sheet. While cash flow performance is improving significantly, historical volatility suggests a need for strategic management. The company is well-positioned in the Information Technology Services industry, supported by solid financial metrics and growth potential.

Income Statement

The income statement shows strong performance with a Gross Profit Margin of 50.54% and a significant improvement in Net Profit Margin at 8.76% in the latest period. Revenue growth is robust at 17.8% from the previous year, indicating a healthy demand for services. The EBIT Margin of 12.76% and EBITDA Margin of 27.72% point to effective cost control and operational efficiency. Overall, profitability metrics demonstrate a positive trajectory.

Balance Sheet

The balance sheet is solid with a Debt-to-Equity Ratio of 0, reflecting no leverage and a strong equity position. Return on Equity (ROE) stands at 6.39%, showing a stable return for shareholders. The Equity Ratio is high at 70.19%, indicating financial stability and low risk. Overall, the company maintains a strong and stable financial position with ample liquidity and no debt burden.

Cash Flow

Cash flow analysis reveals impressive Free Cash Flow growth, recovering from negative to positive territory, reflecting improved cash management. The Operating Cash Flow to Net Income Ratio of 3.94 indicates strong cash generation relative to net income, supporting operational activities. However, prior volatility in cash flow metrics suggests potential risks in cash management strategies. Overall, cash flow performance is strengthening but requires careful monitoring.

Breakdown	TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement
Total Revenue	2.35B	2.50B	2.50B	2.12B	2.07B	1.80B
Gross Profit	1.31B	1.29B	1.26B	1.40B	1.30B	1.18B
EBITDA	563.67M	587.04M	692.53M	350.04M	432.48M	255.38M
Net Income	221.15M	220.24M	218.86M	174.76M	248.59M	138.67M
Balance Sheet
Total Assets	4.66B	4.66B	4.88B	4.21B	4.44B	3.90B
Cash, Cash Equivalents and Short-Term Investments	3.76B	3.71B	3.76B	3.39B	3.74B	3.28B
Total Debt	0.00	0.00	0.00	0.00	0.00	0.00
Total Liabilities	1.32B	1.15B	1.46B	866.14M	1.15B	729.67M
Stockholders Equity	3.34B	3.51B	3.43B	3.34B	3.29B	3.17B
Cash Flow
Free Cash Flow	506.20M	312.97M	503.05M	-216.51M	567.06M	348.06M
Operating Cash Flow	506.20M	345.94M	862.64M	3.88M	741.15M	436.93M
Investing Cash Flow	0.00	-261.88M	-364.19M	-226.66M	-164.49M	59.37M
Financing Cash Flow	0.00	-134.29M	-134.29M	-120.86M	-120.86M	-235.52M

Encourage Technologies Co., Ltd. Technical Analysis

• Technical Analysis Sentiment: Neutral
• Last Price: 690.00
• 50DMA: Positive
• 100DMA: Positive
• 200DMA: Positive
• MACD: Positive
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For JP:3682, the sentiment is Neutral. The current price of 690 is above the 20-day moving average (MA) of 684.15, above the 50-day MA of 656.28, and above the 200-day MA of 620.49, indicating a neutral trend. The MACD of 13.15 indicates Positive momentum. The RSI at 51.71 is Neutral, neither overbought nor oversold. The STOCH value of 47.76 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for JP:3682.

Encourage Technologies Co., Ltd. Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
7120	84 Outperform	¥5.25B	9.13	―	3.51%	6.56%	46.55%
3682	72 Outperform	¥4.54B	18.37	―	2.99%	1.14%	23.89%
4068	66 Neutral	¥3.29B	33.85	―	―	9.33%	133.75%
Sector *	61 Neutral	$37.18B	12.37	-10.20%	1.83%	8.50%	-7.62%
4450	61 Neutral	¥6.82B	14.90	―	1.13%	22.22%	28.14%
4416	57 Neutral	¥3.43B	75.75	―	―	5.05%	-50.80%
5255	39 Underperform	¥11.12B	-3.33	―	―	-29.41%	79.74%