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Nintendo Co. (NTDOY - Free Report) , a Zacks Rank #1 (Strong Buy) stock, is an iconic Japanese gaming company responsible for well-known franchises like Legend of Zelda, Mario, and Pokémon. Most people have heard of the established gaming company, but its stock has mainly flown under the radar.
Like others in the industry, Nintendo’s growth accelerated in 2020 when the pandemic initially hit, as consumers bought more Switch gaming consoles and played more games. Last year was tough for comparison purposes as investors agonized over the Japanese gaming giant’s decelerating growth, but NTDOY looks to have turned the corner as it finally moves past those relative comparisons from 2020.
The stock has been outperforming the overall market during the past 3 months with an +11.7% return. NTDOY is a component of the Zacks Toys – Games – Hobbies industry group, which currently ranks in the top 27% out of approximately 250 industries. The stocks within this industry group are experiencing positive earnings estimate revisions, which is the most powerful force impacting stock prices. Also note the favorable relative valuation characteristics for this industry group:
Image Source: Zacks Investment Research
Quantitative research studies suggest approximately half of a stock’s future price appreciation is due to it industry grouping. Investing in stocks within leading industry groups can provide a constant ‘tailwind’ to our investing results. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Company Description
Nintendo, a global leader in the creation of interactive gaming, develops and manufactures electronic entertainment products primarily in Japan, the Americas, and Europe. NTDOY offers video game platforms, handheld and home console systems, related software, and playing cards. Nintendo was founded in 1889 and is based in Kyoto, Japan.
Last year, Nintendo partnered with Comcast’s Universal Studios in a deal that marks its first Super Nintendo World theme park in Japan. Nintendo also has plans to open new parks in Singapore, California, and Florida in the coming years.
The legendary gaming company hit a minor roadblock two weeks ago when it announced that it was pushing back the release of the highly anticipated sequel to “Legend of Zelda: Breadth of the Wild” to spring 2023. However, NTDOY boasts an impressive gaming pipeline for this year and can afford to delay the next version. For context, the “Breath of the Wild” Zelda release was delayed as well and ended up selling more than 25 million copies.
Nintendo’s top line has been buoyed in recent years by new releases such as Animal Crossing: New Horizons. The company has shipped nearly 35 million copies of the online multiplayer game, which evolved into a social platform during the pandemic. With multiple Pokémon titles slated for release as well as classics such as Super Mario Brothers, the blockbuster lineup for this year will help breathe fresh life into the Nintendo Switch – the company’s flagship console.
Earnings Trends and Future Estimates
NTDOY has missed earnings estimates just twice in the past five years and has exceeded the consensus mark in each of the past nine quarters. Back in February, the Japanese gaming giant reported fiscal Q3 EPS of $1.83, a +28.87% surprise over the $1.42 consensus estimate. Nintendo has posted a trailing four-quarter average earnings surprise +86.73%.
Nintendo boasts a $66.37 billion-dollar market capitalization and a 1.66% dividend yield. Analysts covering NTDOY have increased their fiscal 2023 earnings estimates by +8.42% in the past 60 days. The Zacks Consensus Estimate now stands at $3.99/share. While this figure is relatively flat compared to fiscal 2022, I believe it is conservative and analysts will continue to increase estimates in the near future.
Nintendo’s subscription-based Switch Online platform recently exceeded 32 million subscribers, or roughly 30% of all Switch devices. In addition, the Switch remains the world’s best-selling gaming console with approximately 103 million devices shipped since early 2017. Total NTDOY sales are expected to climb 1.07% in the coming year to $15.27 billion.
Charting the Course
NTDOY is up nearly 10% this year alone, widely outperforming the major indices. Only stocks that are in extremely powerful uptrends are able to weather bear markets and corrections so gracefully. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Image Source: StockCharts
Notice how the 50-day and 200-day moving averages (as evidenced by the blue and red lines, respectively) are both sloping up. Also note that the 50-day MA has acted as support several times throughout the past few months. The stock is making a series of higher highs and is showing relative strength versus the market. With both strong fundamentals and technicals, NTDOY has been of the pandemic’s biggest beneficiaries.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. And as we know, Nintendo has seen a recent batch of positive revisions. As long as this trend remains intact (and NTDOY continues to post earnings beats), the stock should continue its bullish run this year.
Despite the remarkable run, NTDOY remains relatively undervalued and underappreciated as we can see below:
Image Source: Zacks Investment Research
Bottom Line
The gaming industry in general has been a substantial beneficiary of the pandemic. As an established veteran in the industry, Nintendo’s core business remains strong despite competitive challenges and supply chain issues. Its sought-after lineup of new releases in addition to an extensive list of classics have helped push NTDOY higher on the year. Buoyed by an undervalued and leading industry group, it’s not difficult to see why NTDOY is a compelling investment.
A history of positive earnings surprises along with a strong technical trend certainly warrant a closer look at this top-rated stock. Recent positive earnings estimate revisions should also serve to create a ‘floor’ in terms of any sudden or unexpected downside moves. Investors should aim to look past any potential issues as the company has moved beyond the tough post-lockdown comparisons.
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Bull of the Day: Nintendo Co., Ltd. (NTDOY)
Nintendo Co. (NTDOY - Free Report) , a Zacks Rank #1 (Strong Buy) stock, is an iconic Japanese gaming company responsible for well-known franchises like Legend of Zelda, Mario, and Pokémon. Most people have heard of the established gaming company, but its stock has mainly flown under the radar.
Like others in the industry, Nintendo’s growth accelerated in 2020 when the pandemic initially hit, as consumers bought more Switch gaming consoles and played more games. Last year was tough for comparison purposes as investors agonized over the Japanese gaming giant’s decelerating growth, but NTDOY looks to have turned the corner as it finally moves past those relative comparisons from 2020.
The stock has been outperforming the overall market during the past 3 months with an +11.7% return. NTDOY is a component of the Zacks Toys – Games – Hobbies industry group, which currently ranks in the top 27% out of approximately 250 industries. The stocks within this industry group are experiencing positive earnings estimate revisions, which is the most powerful force impacting stock prices. Also note the favorable relative valuation characteristics for this industry group:
Image Source: Zacks Investment Research
Quantitative research studies suggest approximately half of a stock’s future price appreciation is due to it industry grouping. Investing in stocks within leading industry groups can provide a constant ‘tailwind’ to our investing results. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Company Description
Nintendo, a global leader in the creation of interactive gaming, develops and manufactures electronic entertainment products primarily in Japan, the Americas, and Europe. NTDOY offers video game platforms, handheld and home console systems, related software, and playing cards. Nintendo was founded in 1889 and is based in Kyoto, Japan.
Last year, Nintendo partnered with Comcast’s Universal Studios in a deal that marks its first Super Nintendo World theme park in Japan. Nintendo also has plans to open new parks in Singapore, California, and Florida in the coming years.
The legendary gaming company hit a minor roadblock two weeks ago when it announced that it was pushing back the release of the highly anticipated sequel to “Legend of Zelda: Breadth of the Wild” to spring 2023. However, NTDOY boasts an impressive gaming pipeline for this year and can afford to delay the next version. For context, the “Breath of the Wild” Zelda release was delayed as well and ended up selling more than 25 million copies.
Nintendo’s top line has been buoyed in recent years by new releases such as Animal Crossing: New Horizons. The company has shipped nearly 35 million copies of the online multiplayer game, which evolved into a social platform during the pandemic. With multiple Pokémon titles slated for release as well as classics such as Super Mario Brothers, the blockbuster lineup for this year will help breathe fresh life into the Nintendo Switch – the company’s flagship console.
Earnings Trends and Future Estimates
NTDOY has missed earnings estimates just twice in the past five years and has exceeded the consensus mark in each of the past nine quarters. Back in February, the Japanese gaming giant reported fiscal Q3 EPS of $1.83, a +28.87% surprise over the $1.42 consensus estimate. Nintendo has posted a trailing four-quarter average earnings surprise +86.73%.
Nintendo boasts a $66.37 billion-dollar market capitalization and a 1.66% dividend yield. Analysts covering NTDOY have increased their fiscal 2023 earnings estimates by +8.42% in the past 60 days. The Zacks Consensus Estimate now stands at $3.99/share. While this figure is relatively flat compared to fiscal 2022, I believe it is conservative and analysts will continue to increase estimates in the near future.
Nintendo’s subscription-based Switch Online platform recently exceeded 32 million subscribers, or roughly 30% of all Switch devices. In addition, the Switch remains the world’s best-selling gaming console with approximately 103 million devices shipped since early 2017. Total NTDOY sales are expected to climb 1.07% in the coming year to $15.27 billion.
Charting the Course
NTDOY is up nearly 10% this year alone, widely outperforming the major indices. Only stocks that are in extremely powerful uptrends are able to weather bear markets and corrections so gracefully. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Image Source: StockCharts
Notice how the 50-day and 200-day moving averages (as evidenced by the blue and red lines, respectively) are both sloping up. Also note that the 50-day MA has acted as support several times throughout the past few months. The stock is making a series of higher highs and is showing relative strength versus the market. With both strong fundamentals and technicals, NTDOY has been of the pandemic’s biggest beneficiaries.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. And as we know, Nintendo has seen a recent batch of positive revisions. As long as this trend remains intact (and NTDOY continues to post earnings beats), the stock should continue its bullish run this year.
Despite the remarkable run, NTDOY remains relatively undervalued and underappreciated as we can see below:
Image Source: Zacks Investment Research
Bottom Line
The gaming industry in general has been a substantial beneficiary of the pandemic. As an established veteran in the industry, Nintendo’s core business remains strong despite competitive challenges and supply chain issues. Its sought-after lineup of new releases in addition to an extensive list of classics have helped push NTDOY higher on the year. Buoyed by an undervalued and leading industry group, it’s not difficult to see why NTDOY is a compelling investment.
A history of positive earnings surprises along with a strong technical trend certainly warrant a closer look at this top-rated stock. Recent positive earnings estimate revisions should also serve to create a ‘floor’ in terms of any sudden or unexpected downside moves. Investors should aim to look past any potential issues as the company has moved beyond the tough post-lockdown comparisons.