Headwaters Co., Ltd. (4011) AI Stock Analysis

• Market Cap: ¥10.59B
• Dividend Yield: N/A
• Average Volume (3M): 23.83K
• Price to Earnings (P/E): 183.9
• Beta (1Y): 1.57
• Revenue Growth: 34.56%
• EPS Growth: 4.59%
• Country: JP
• Employees: 240
• Sector: Technology
• Sector Strength: 88
• Industry: Software - Application
• EPS (TTM): 3.29
• Shares Outstanding: 3,844,144
• 10 Day Avg. Volume: 32,270
• 30 Day Avg. Volume: 23,833
• PEG Ratio: -2.34
• Price to Book (P/B): 8.06
• Price to Sales (P/S): 2.75
• P/FCF Ratio: -176.84
• 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: 43 Neutral
• Price Target: ¥2,610.00 ▼(-9.59% Downside)
• Action: Reiterated Date: 02/18/26
• Date: Action: Reiterated 02/18/26

The score is primarily weighed down by weakened financial quality in 2025 (negative cash flow, higher leverage, and margin compression). Technicals also signal a sustained downtrend, and valuation is demanding with a very high P/E and no dividend support.

Positive Factors

Revenue Growth

Sustained top-line momentum (including ~21% in 2025) indicates product-market fit and demand resilience. Over a 2–6 month horizon this supports scale advantages, investment capacity for R&D or sales, and a base to restore margins if cost pressures are managed.

Gross Margin Health

Historically healthy gross margins imply pricing power or efficient delivery, providing a structural cushion against cost shocks. Even if trending down, a solid gross margin base supports long‑term profitability recovery and protects operating income as revenue grows.

Prior Cash Generation Track

A multi-year history of positive operating and free cash flow (2020–2024) shows the company previously converted profits into liquidity. That operational cash conversion track record suggests management and business model can generate funds once recent disruptions are addressed.

Negative Factors

Negative Cash Flow 2025

The 2025 reversal to negative operating and free cash flow is a durable warning sign: it reduces internal funding for operations and capex, forces reliance on external financing, and constrains strategic flexibility over the next several months if cash conversion does not rebound.

Rising Leverage

A material step-up in debt after years of no leverage increases financial risk and interest expense. This reduces resilience to earnings volatility and limits ability to invest or absorb shocks, making recovery efforts more costly and sensitive to cash flow performance.

Margin Compression

Compressing operating and net margins despite higher revenue signals structural cost or pricing pressures. If margins continue to erode, revenue growth will not translate into sustainable earnings or cash, undermining long‑term profitability and financial stability.

Headwaters Co., Ltd. Business Overview & Revenue Model

Company Description

Headwaters Co.,Ltd engages in planning and developing artificial intelligence (AI) applications in Japan. It is also involved in the digital transformation, AI platform operation, cloud service operation, cloud robotics service, and robot application production activities. The company was founded in 2005 and is headquartered in Tokyo, Japan.

How the Company Makes Money

Headwaters Co., Ltd. makes money primarily through the sale of its AI solutions and services. The company's revenue streams include licensing fees from its proprietary AI software, custom AI solution development for specific client needs, and ongoing service contracts for AI implementation and maintenance. Additionally, Headwaters Co., Ltd. may engage in strategic partnerships with other technology firms to expand its market reach and enhance its product offerings, thereby driving further revenue growth. These partnerships can also lead to joint ventures or collaborative projects where revenue is shared based on mutual agreements.

Headwaters Co., Ltd. Financial Statement Overview

Summary

Despite strong revenue growth (including ~21% in 2025), 2025 showed a clear deterioration in earnings quality: profitability compressed, leverage rose materially after prior years of no debt, and operating/free cash flow turned negative.

Income Statement

Revenue growth has been strong across the period (including ~21% growth in 2025), showing solid top-line momentum. However, profitability has been volatile: net income fell sharply in 2025 versus 2024, and operating margin also compressed meaningfully despite higher sales. Gross margin has generally been healthy but appears to be trending lower versus earlier years, suggesting rising delivery costs and/or competitive pricing pressure.

Balance Sheet

The balance sheet weakened notably in 2025 with a sizable increase in debt (from no debt in prior years) while equity growth did not keep pace, increasing financial risk. Total assets expanded significantly, but the step-up in leverage reduces flexibility if earnings remain pressured. Earlier years looked conservative with zero debt, making the 2025 shift a clear negative inflection.

Cash Flow

Cash generation deteriorated sharply in 2025, with both operating cash flow and free cash flow turning negative—an unfavorable contrast to consistently positive cash flow in 2020–2024. This raises concerns that recent earnings are not translating into cash and that working capital and/or investment needs are absorbing liquidity. Prior-year free cash flow was solid, but the latest year’s reversal is the key risk.

Breakdown	TTM	Dec 2025	Dec 2024	Dec 2023	Dec 2022	Dec 2021
Income Statement
Total Revenue	3.21B	3.90B	2.91B	2.32B	1.57B	1.17B
Gross Profit	1.36B	1.73B	1.24B	855.09M	645.54M	524.26M
EBITDA	100.48M	256.72M	327.00M	110.03M	121.43M	70.87M
Net Income	119.39M	58.13M	272.79M	70.68M	75.14M	27.04M
Balance Sheet
Total Assets	1.66B	3.85B	1.80B	1.29B	1.17B	973.21M
Cash, Cash Equivalents and Short-Term Investments	833.10M	625.14M	843.23M	897.90M	818.61M	765.55M
Total Debt	0.00	1.90B	0.00	0.00	0.00	0.00
Total Liabilities	448.06M	2.50B	527.79M	332.58M	293.80M	172.91M
Stockholders Equity	1.20B	1.33B	1.27B	958.44M	875.44M	800.30M
Cash Flow
Free Cash Flow	0.00	-60.64M	117.83M	71.44M	43.41M	45.34M
Operating Cash Flow	0.00	-38.71M	144.41M	87.66M	84.27M	48.08M
Investing Cash Flow	0.00	-2.09B	-210.97M	-13.48M	-31.21M	-52.78M
Financing Cash Flow	0.00	1.91B	10.25M	5.40M	0.00	16.75M

Headwaters Co., Ltd. Technical Analysis

• Technical Analysis Sentiment: Neutral
• Last Price: 2887.00
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Negative
• MACD: Negative
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For JP:4011, the sentiment is Neutral. The current price of 2887 is above the 20-day moving average (MA) of 2834.30, below the 50-day MA of 2945.04, and below the 200-day MA of 3407.09, indicating a neutral trend. The MACD of -56.08 indicates Negative momentum. The RSI at 47.94 is Neutral, neither overbought nor oversold. The STOCH value of 44.68 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for JP:4011.

Headwaters Co., Ltd. Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
4060	74 Outperform	¥6.69B	25.18	―	0.57%	21.03%	32.29%
5256	69 Neutral	¥2.91B	16.32	―	―	13.48%	61.77%
4397	68 Neutral	¥6.71B	16.64	―	―	11.32%	―
5033	66 Neutral	¥4.90B	13.29	―	―	7.60%	19.13%
Sector *	61 Neutral	$37.18B	12.37	-10.20%	1.83%	8.50%	-7.62%
4448	58 Neutral	¥12.34B	56.91	―	―	14.63%	-760.87%
4011	43 Neutral	¥10.59B	183.85	―	―	34.56%	4.59%

Headwaters Co., Ltd. Corporate Events

Headwaters Co., Ltd. Reports Q3 2025 Financial Results with Increased Sales but Declined Profits

Headwaters Co., Ltd. reported its consolidated financial results for the third quarter ending September 30, 2025, showing a significant increase in net sales by 29.4% year-on-year to ¥2,702 million. However, the company experienced a decline in operating profit, ordinary profit, and profit attributable to owners of the parent, with decreases of 54.7%, 67.4%, and 68.8% respectively, compared to the previous year. The company’s total assets increased to ¥3,727 million, but the equity-to-asset ratio dropped to 35.4% from 70.4% at the end of 2024. The company has not revised its previously announced consolidated forecast for the fiscal year ending December 31, 2025.