The Call LY Bulls Got Right

If you had backed LY on 1 January 2026 and simply sat tight, the outcome would have been hard to ignore. Holding LY from the start of the year would have returned 32.7%, including dividends. That result landed after a year when analysts were split between AI driven upside, worries about stricter privacy rules, and rising competition. If you were weighing that early fork in the road, which part of LY’s business would have mattered most to you?

Narratives are how investors here put a case on the record, with explicit assumptions about revenue, margins and the multiple. Those assumptions imply an estimated Fair Value.

The easy part of this move is behind LY. Zero in on 25 high quality undervalued stocks for companies trading below our estimates.

The Two Stories Investors Had To Choose Between On LY

The shares cost ¥413 at the start of the period, and LY sat between two cleanly opposed stories about where the next few years might go.

On the bullish side, analysts saw Fair Value at ¥567. That view leaned on LY using AI across media, commerce, and messaging to lift user engagement, with an assumption of 7.0% annual revenue growth and profit margins moving toward 8.7% over a 3 year window.

The bearish camp put Fair Value at ¥350. Their concern focused on stricter privacy rules reducing ad targeting effectiveness, with pressure on LY from intense competition and the risk that higher customer acquisition costs would compress margins.

What The Results Put To The Test For LY

LY’s Q2 2027 figures gave the cleanest test of the original thesis. Revenue was ¥563,681m versus ¥505,736m a year earlier, which pointed toward the growth case. Net income excluding extra items moved the other way, at ¥34,849m versus ¥89,597m, and net margin fell from 17.7% to 6.2%. The evidence cut both ways.

The hinge assumption was that LY could grow sales while improving profitability. When you look at another company, track whether rising revenue is accompanied by a healthier net margin or whether earnings power thins out as the top line scales.

What LY’s Run Up 33% Already Prices In

LY’s share price now trades at ¥541 from the start of the year, and the selected Narrative’s Fair Value sits below that level. The gap reflects a cautious stance that current pricing already bakes in a more upbeat path than its own assumptions.

The Narrative circles one crux. For today’s valuation to hold up, a buyer would need confidence that LY converts AI agents, commerce fees and subscriptions into durable earnings power despite recent EPS shortfalls.

"The main factor that needs to go right is successful execution on AI agent rollout, payments and commerce expansion, and higher margin subscriptions. This would allow LY's mix shift toward Agent i, PayPay, account ads, and LYP Premium to support the medium term growth and ROE targets that management has set."

One Narrative disagrees with today's price. → See where this Narrative says LY should trade

Before The Next Story Makes Headlines

What if your next investment idea came before the headlines? Go straight to the companies whose prices and our estimates still disagree. Three places to start, with the names waiting behind the link.

• Company 1 - 22% below our estimate - uses independent maintenance contracts to win elevator and escalator servicing.
• Company 2 - 41% below our estimate - sells bundled IT and office setups replacing multiple vendors for smaller enterprises.
• Company 3 - 18% below our estimate - rents cloud tools standardising billing, sales and email workflows for lean teams.

Those are three of them. See the full list of 23 financially solid companies →

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