The Long Case For Nintendo

Summary

  • Nintendo is coiled like a spring ready to jump.
  • The market has underestimated the NX and mobile offerings.
  • Nintendo is not currently in vogue and now is the perfect time to buy.

Elevator Pitch

Nintendo (OTCPK:NTDOY) is extremely undervalued for the future potential contained within the Nintendo IP. Get in before the NX details are revealed in June and the stock spikes. Additionally, several big games are on the near-term horizon, including a new Zelda for the Wii U and the final reveal of the Nintendo DeNA mobile offering.

Thesis And Catalyst For Nintendo

Nintendo has long been thought of by the market as a company past its prime and headed for a dim future. I hope that this recap of the near-term horizon changes your mind.

While I agree that the past few years have not been kind to Nintendo with the missteps of the Wii U (an abysmal failure of a console due to shoddy marketing and poor timing), the future looks very bright. Nintendo has some of the most valuable and well-loved IP in the world tied up in its various franchises (Mario, Metroid, Donkey Kong, Smash Brothers).

The recent moves into mobile and the upcoming NX (new console) reveal scheduled for June/July will generate catalysts that have the potential to drive the stock price up based on hype alone. As a reference, the mere prospect of Nintendo entering the mobile space drove the share price from $14 up to $22 peaking in September at $25.

News on the first (underwhelming) mobile offering (Titled “Miitomo”) had many scratching their heads as the game seems to be more like a social network app than an actual “game”. Share price has steadily dropped since this news which you can see on the chart below.

NTDOY performance over last yearClick to enlarge

It is still not completely clear as to what Nintendo’s mobile game strategy is and it has been very tight lipped on details. I expect to see “freemium” or “free to try” offerings of a variety of games and potentially the opening up of the back catalog of Nintendo products from previous consoles. If Nintendo plays this hand correctly, it will be the top selling apps in a market that Nintendo had previously not touched.

The NX is also a bit of a mystery but I expect it will be a hybrid console/portable replacement for the 3DS and Wii U with more power and a “platform” of software that allows the same games to be played on the TV or remotely. There may even be some mobile integration which would further tie the NX as a true “Nintendo Cross” platform offering.

We should also see a new Zelda game in 2016 for the Wii U which will be a system seller building on the recent Wii U monster successes of Splatoon and Super Mario Maker. (Mario Maker is regarded by many critics as the best game of 2015)

Valuation

Nintendo is about to turn the corner and is poised to jump back into the lead in the console/video game market if the mobile offerings hit big and the NX delivers on the hype.

There are two ways to play Nintendo from my perspective. Buy the stock now and hold until the NX and mobile offering reveals (sell the news) or purchase for the long term with the expectation that Nintendo will regain much of its lost footing in the home console market.

Personally, I intend to hold until the NX/Mobile reveals and have set a sale target price of $26 based on levels seen previously when the news of Nintendo IP going to mobile was first published.

If the stock does not achieve that level in June/July, I intend to hold long term if I agree with the technical direction and business strategy that Nintendo reveals.

Variant View

What could go wrong?

If the NX or mobile game offerings are VERY underwhelming, expect the market to mostly yawn and keep the NTDOY share price in the range of $12-16 with an upside of maybe $19-20.

The above article originally appeared on Seeking Alpha, written by Jimmy Lamz.

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