Is NTDOY Stock Safe?
Customers of Nintendo Co., Ltd (OTCMKTS: NTDOY) have a love-hate relationship with the company, which tends to make the stock a little volatile. You can see NTDOY stock spike in one week, and tank in the next. For instance, the Nintendo stock price (USD) was trading at $44.25 two weeks ago—it’s now at $39.87. That’s nearly 10% of the firm’s market cap.
Gone. Vanished. Evaporated. In under one month.
Don’t get me wrong; I’m not saying that Nintendo stock is all downside risk. It isn’t.
Heck, the share price almost doubled in the last year, so clearly volatility isn’t stopping the stock from reaching new heights.
I’m on record saying that Nintendo stock is an interesting investment opportunity, but I just think that timing it is especially important.
You don’t want to catch this stock at its peak. You want to pick it up from the bargain bin.
If it’ll make the NTDOY stock bulls feel any better, this rule applies to most consumer-facing businesses, not just Nintendo.
Let me explain…
When International Business Machines Corp. (NYSE:IBM) makes a sale, it’s usually to another corporation. The client looks at several options, maps out the next few years, THEN decides to buy IBM’s products.
In other words, corporations are rational and methodical. People are not.
Anyone with the faintest idea of psychology knows that people are fickle. They change their feelings at the drop of a hat. One day they love something, the next it’s trash. It doesn’t have the “cool” factor.
This is partly why Apple Inc. (NASDAQ:AAPL) unveils new products all the time. The same goes for Samsung, HTC, and all the other electronics makers. They need to keep folks entertained with shiny new gadgets.
But I’m getting away from my point.
Bottom Line: Investors want to nab NTDOY stock when it’s trading on the cheap. That is right now.
We are currently in a dip where consumer sentiment is against Nintendo. But I don’t think that this pessimism is going to last, because Nintendo’s upcoming product releases will spark a rally.
New Tailwinds for the Nintendo Stock Price
In March, the “Nintendo Switch” sold 2.74 million units. Consumers were loving it more than analysts were expecting, so NTDOY stock climbed approximately 45% in the three months that followed.
But then the Nintendo stock price hit a brick wall in late June. It tumbled almost 10%.
Chart courtesy of StockCharts.com
I guess the optimism ran dry. But now, the company is releasing Splatoon 2, a video game designed specifically for the Nintendo Switch. It’s an excellent move on their part.
Companies like Nintendo sell their consoles for next to nothing. The Nintendo Switch is barely breaking even at $299.00. They don’t do this from the goodness of their hearts, though.
They do it to sell video games. The margins on video games are ridiculously high, which is great for video game companies and bad for video game fans. Nonetheless, it is how the business works. The REAL money is made from video games, not consoles.
By releasing Splatoon 2, Nintendo is clearly trying to raise its bottom line. From an investor’s perspective, that’s extremely good news. Last year’s gains were founded on top line growth alone.
Can you imagine how much Nintendo stock will rise on both top line and bottom line growth?
To be sure, we’re making the assumption that people will like Nintendo’s games. But I think that’s a safe assumption. Do you remember the Pokémon GO craze last summer? When kids were running around in parks staring at their smartphones? And when you asked them what they were doing, they said they were hunting for Pokémon? That was a Nintendo game.
It doesn’t need to make sense to you. All you need to know is that people love it, and that they’re willing to pay for it.
Nintendo also had a ton of success with the Super Mario franchise, so it was nice to see that the Nintendo Switch will have Mario Kart 8 Deluxe.
All in all, it’s safe to say that Nintendo makes popular games.
But there’s more. Until now, the Nintendo Switch only had gaming on it. No apps. No “Netflix,” “Amazon,” “Hulu,” or “YouTube,” which is pretty crazy when you think about it.
Nintendo was able to gin up enthusiasm for a device that could have come out in 2007. But apparently that was part of a larger strategy, because the company is rolling out these app in the next few months.
A senior Nintendo executive explained the strategy to Business Insider: “At launch we are really trying to be clear that this is a gaming device first, so you’re actually not gonna see a lot of that at launch. It doesn’t mean that it’s not going to come later on, but it likely won’t be there at launch.” (Source: “Nintendo’s new console is finally getting video streaming services,” Business Insider, July 12, 2017.)
The addition of apps and original games is going to make the Nintendo Switch much more profitable over the next few years. With this in mind, I think the current lull in NTDOY stock price is going to end, starting a new chapter of growth for the gaming titan.