Is it time to invest in Nintendo?

This article is for informational purposes only and is not intended to provide financial or investment advice. Investing comes with a significant degree of risk. As such, you should do your own research or consult an adviser before making any financial decision. Thank you, and we hope you enjoy the article.

Nintendo’s stock has been in the news extensively thanks to the success of Pokemon Go and the announcement of Super Mario Run coming to iOS this holiday. Source Gaming is one of the few sites that provides comprehensive analysis of Nintendo’s financial position, and many Nintendo fans may be contemplating investing in the company now that its future looks brighter. So should you buy Nintendo? That’s really for you to decide, but we’d like to present some of the pros (and cons) of the Nintendo’s stock market now that we are heading towards the reveal of the new Nintendo console, only known as the “NX”, so the expectations are high above the clouds, and, as you may see, not only fans are feeling the hype, so are the stock investors.

When investing in any stock, you have to look at both expected return and standard deviation. So what do these mean? Expected return is what you expect to make on a stock. Standard deviation is the amount of variance of a stock and is a measure of risk. Generally, a stock should have a high expected return, but a low standard deviation. We decided to calculate both of these for Nintendo and five other companies:

So what does all this mean? With Nintendo’s stock, you can expect a return of 1.58 percent annually. That said, the stock is also expected to vary about 2.8 percent, so you could get 4.38 percent or lose 1.22 percent. Generally, you want a low standard deviation and a higher expected return. In this way, you maximize returns and minimize risk.

Unfortunately, video game companies has a much higher risk. With the exception of Microsoft (who is not solely in the business of video games), Nintendo has the lowest standard deviation. Nintendo, Sony and Microsoft also have the second worse return, beaten only by Square Enix, but they are at least more stable than other companies. On the other hand, if all of these stocks are generally more risky, an investor may be better served investing in another company as there are far safer stocks than Nintendo’s. Essentially, if you are investing in video games, you are accepting more risk and should also go for greater returns.

Another major indicator of the value of a stock is how much money Nintendo makes. Buying stock in a company is investing in that company. So you have to look at the financials of the company. Let’s see how Nintendo has performed over the last 5 years:

Nintendo has remained somewhat profitable at least showing positive ordinary income for the last 4 years. However, sales have been steadily declining over the last 5 years. Nintendo has been able to hold on due to a lowering of the cost of games and systems (also known as Cost of Goods Sold). This is evident in the increasing Gross Profit Ratio.

The numbers aren’t fantastic. The past is a good indication of the future, but the video game industry can change quickly, as in 2008, Nintendo was on top of the world, but now, they are the laughing stock of the industry. So you have to look at what’s coming down the pipeline as well in order to judge if the stock will go up or not.

With the explosive popularity of Pokémon Go, the price of the Nintendo Stock jumped high rather quickly, starting at July 7th (A) with the release date of the App in America, and coming to its peak at July 19th (B) days after its release in Japan. Getting a new peak at September 7th (C) with the announcement of Super Mario Run at the Apple Special event.

Talk about a “Critical hit” (Data from Google Finance and Yahoo Finance)

But after the storm, the calm came back to the investors, which resulted in a quick drop in stock prices. However, despite this decline, stocks maintained a higher value than they had before the July peak, which, in fact, had a steady decline since its last major peak in 2015.

2015 was a stony year for Nintendo.

We still can’t understand…

This peak began around March 19th 2015 (D), with the reveal of the New Nintendo 3DS coming to a peak May 15th (E) with some interesting news about the NX and gaining more traction in June 26th (F) after the annual shareholders meeting and the first clarifications about the Mobile Apps and the possibilities of expanding the brand to new mediums, like TV and Movies. This increase came to a halt in July 11th (G) with the sad news of the passing of Mr. Satoru Iwata, president of Nintendo. getting a new high peak at the end of August (H) with the reveal of the release date of the games for the rest of the year. Just to descend again on mid-september (I) coinciding with the presentation of Mr. Tatsumi Kimishima as the new President of Nintendo. Just to have a last peak at mid-October (J) with the news of the distribution of the software developer kits for the NX and the rumors of it being a Handheld device with “industry leading chips”, but not every news got well received, as at The last week of October (K) Miitomo and the Nintendo mobile apps resulted in the beginning of the slow decrease of the stock prices as investors expected Nintendo’s first foray into mobile games to feature their beloved characters and worlds.

Well, please look at this:

It looks like the Everest.

The Wii era was easily the Golden Age for the Nintendo., utilizing the Blue Ocean strategy and Disruptive Innovation, Nintendo attracted a new market that the other console giants never considered. The Wii sold 101 million units resulting in massive profits for the company. At the height of the Wii, the stock was trading for almost $80.0 USD. We have no idea if Nintendo will ever have another Wii phenomenon. What we can say is that when comparing the Wii era and the Wii U era, there is a lot of room for Nintendo’s stock to grow.

Clearly, the expectations for the NX are huge, but that also brings huge risks, even more so as we don’t know anything tangible about it. And that why there are three big dark shadows over the horizon: the first one being the possibility of that the reveal of the NX could be underwhelming and not live to the expectations, and that could be really bad for the stock prices. And the other two are named: Sony’s PS4 Pro and Microsoft’s Project Scorpio. If those two consoles overshadow the NX reveal and launch, Nintendo would certainly have a bad time, not only with the shareholders but also with the buyers.

But at the same time, Nintendo has beginning to expand itself to other frontiers, like the mobile market, which gave good results with the investors, so the idea of getting a thematic park and the renewed interest in making movies could be a catch for new investors, not only the interested in video games, but also in the interested in the tested power of the Nintendo Brand.

So, in our opinion, there is some light at the end of the tunnel, but we don’t know how much time will take us to get there and how much it going to last.

What do you think? If you had the money, would you invest it in Nintendo now? or maybe you would wait for more information about the NX or the Apps?

Thanks for reading, and as always, feel free to disagree and comment your own opinions below.