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

• Market Cap: ¥8.85B
• Dividend Yield: N/A
• Average Volume (3M): 23.83K
• Price to Earnings (P/E): 184.5
• Beta (1Y): 1.49
• 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: ¥2,220.00 ▼(-23.10% 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 high revenue growth (multi-year and ~21% in 2025) indicates durable product-market fit and expanding customer adoption. Over the next 2–6 months this top-line momentum should support scale benefits, backlog conversion, and provide a runway for reinvesting in product and sales capacity.

Gross Margin Resilience

Historically healthy gross margins point to favorable unit economics and some pricing or delivery advantage versus peers. Even if margins face pressure, a strong gross margin base supports margin recovery opportunities and prioritizes operating leverage as revenues grow, aiding medium-term profitability.

Prior Cash Generation / Financial Discipline

A track record of solid free cash flow through 2020–2024 and previously zero net debt demonstrates historical financial discipline and cash conversion capability. That institutional capability increases the likelihood management can restore cash generation and re-optimize capital structure over coming quarters.

Negative Factors

Cash Flow Reversal

The shift to negative operating and free cash flow in 2025 is a material structural risk: it reduces liquidity, forces reliance on external financing, and constrains reinvestment. If cash conversion does not normalize, the company may face sustained funding pressure and curtailed strategic options.

Increased Leverage

A material rise in debt after a history of zero leverage increases financial fragility. Higher interest and covenant risk can limit flexibility for hiring, R&D, or M&A, and exacerbates downside if earnings remain pressured, raising refinancing and solvency concerns in the medium term.

Profitability Compression

Significant 2025 margin compression and a sharp net income decline despite revenue growth signal deteriorating unit economics or rising delivery costs. Persistent margin volatility undermines free cash generation, weakens reinvestment capacity, and challenges the sustainability of growth if cost structure is not fixed.

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

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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	1.81B	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	534.95M	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: Negative
• Last Price: 2887.00
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Negative
• MACD: Positive
• RSI: Neutral
• STOCH: Positive

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For JP:4011, the sentiment is Negative. The current price of 2887 is above the 20-day moving average (MA) of 2617.15, above the 50-day MA of 2863.42, and below the 200-day MA of 3353.27, indicating a bearish trend. The MACD of -122.70 indicates Positive momentum. The RSI at 33.28 is Neutral, neither overbought nor oversold. The STOCH value of 2.90 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative 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	¥6.02B	21.40	―	0.57%	21.03%	32.29%
5256	69 Neutral	¥2.76B	27.18	―	―	13.48%	61.77%
4397	68 Neutral	¥6.79B	27.15	―	―	11.32%	―
5033	66 Neutral	¥4.86B	21.99	―	―	7.60%	19.13%
Sector *	61 Neutral	$37.18B	12.37	-10.20%	1.83%	8.50%	-7.62%
4448	58 Neutral	¥11.75B	74.58	―	―	14.63%	-760.87%
4011	43 Neutral	¥8.85B	184.47	―	―	34.56%	4.59%

Headwaters Co., Ltd. Corporate Events

Headwaters Balances Strong Sales Growth With Profit Squeeze, Projects Sharp Rebound in 2026

Headwaters Co., Ltd. reported consolidated net sales of ¥3.9 billion for the fiscal year ended December 31, 2025, a 34.2% increase year on year, but operating profit fell 25.6% to ¥229 million and profit attributable to owners of parent dropped 78.9% to ¥57 million. Despite stronger top-line growth, profitability was squeezed, equity-to-asset ratio declined sharply to 34.5% amid a large increase in total assets to ¥3.8 billion, and cash flows from investing and financing activities swung significantly, reflecting an aggressive investment phase and capital raising that weighed on short-term earnings.

The company maintained a no-dividend policy for 2025 and forecasts no dividends for 2026, underscoring a continued focus on reinvestment over shareholder payouts. For the fiscal year ending December 31, 2026, Headwaters projects a strong rebound, with net sales expected to jump 47.8% to ¥5.76 billion and profit attributable to owners of parent to more than triple to ¥231 million, signaling management’s confidence that recent investments will translate into improved margins and a stronger competitive position in its market.

The most recent analyst rating on (JP:4011) stock is a Sell with a Yen2440.00 price target. To see the full list of analyst forecasts on Headwaters Co., Ltd. stock, see the JP:4011 Stock Forecast page.

Headwaters Boosts AI-Driven Sales but Sees Sharp Profit Decline in FY2025

Headwaters Co., Ltd. reported a sharp increase in consolidated net sales for FY2025 to about ¥3.9 billion, up 34% year on year, driven mainly by strong expansion in its AI business, which grew roughly 81% and now accounts for more than two-thirds of total revenue. In contrast, sales in its DX and product segments declined, and profitability weakened, with operating profit, ordinary profit, and profit attributable to owners of the parent all falling significantly, undershooting full-year forecasts and implying pressure on margins despite top-line growth.

AI segment revenues exceeded the company’s full-year forecast, highlighting strong demand and reinforcing Headwaters’ strategic pivot toward AI-centric services, while DX and product revenues lagged their plans. However, the sharp drop in profit ratios and basic earnings per share suggests rising costs or changing revenue mix, signaling that the company must balance growth in AI with stronger cost control and profitability to sustain its competitive position and investor confidence.

The most recent analyst rating on (JP:4011) stock is a Sell with a Yen2440.00 price target. To see the full list of analyst forecasts on Headwaters Co., Ltd. stock, see the JP:4011 Stock Forecast page.