WSJ: Softbank Overvalued by 20% (SFTBF)

| About: SoftBank Group (SFTBF)

The Wall Street Journal Weekend Edition June 3-4 carried a piece on Softbank Corp (OTCPK:SFTBF) that explained how one of the most widely traded Japanese firms is overvalued by "some 20%" (see p. B14, "Softbank's Hard Facts"). This is a great brief write-up of Softbank's situation but it doesn't mean investors or traders can make much, if anything off it.

Shares of Softbank can be traded on the OTC but only have a 3-month average volume of 5,506 according to Yahoo! Finance. Its ordinary shares (Tokyo: 9984) by contrast trade nearly everyday in the double-digit millions. Softbank is popular among individual and institutional investors alike but its stock nevertheless has lost nearly half its value year-to-date. And the WSJ article says Softbank is 90% off its dot-com peak. It doesn't help that analysts such as those at Lehman believe Softbank overpaid by as much as 20% in its acquisition of Vodafone's (NASDAQ:VOD) Japan unit.

I don't think there's much discussion of Softbank being overvalued in Japan. In fact, if its shares were to fall by another 20% over any given period by the end of this year I am certain there would be strong support at those levels that would send the stock right back up. There's too much uncertainty or better yet, unknown, surrounding chief Masayoshi Son and his deal making. This is the whole point of the WSJ piece, that investors pay a premium because who knows what Son is going to pull out of his bag next. Uncertainty (the unknown) and thus risk along side opportunity is what makes markets. Maybe it's worth considering shorting Softbank's ordinary shares but I think both the transaction and opportunity costs are too high.

The article also describes how Softbank's second biggest asset, its "troubled" broadband unit faces a "bleak future." Its latest acquisition (of Vodafone Japan) cost $2 billion of equity and saddled the company with debt that had all the ratings firms concerned. The real gem of Softbank however, is its stake in Yahoo! Japan (Tokyo: 4689). It's believed that Softbank can parlay Yahoo's mobile offerings to attract new subscribers and chip away at its larger rivals' market share. At the end of April, NTT DoCoMo (NYSE:DCM) controlled 55.7% of the market versus KDDI's (Tokyo: 9433) 27.8% and Vodafone's 16.5% (see related post).

On Monday in Tokyo, Softbank ordinary shares lost 1.93% to close at 2,540 yen (US$22.61). The last OTC price available for Softbank is its Friday close at $23.00.