Nintendo’s share price started to trend up with the launch of Switch in 2017. Quarterly reporting by Nintendo is showing expansion of growth, coupled with higher gross margin, which bodes well to the company's bottom line. Its PE of 16.7x is attractive when compared to other US game developers like EA and Activision Blizzard with PE of 50.2x & 34.5x respectively.
Analysts are estimating that Switch is probably in the middle of its sales cycle, thus it probably has another 3-4 years to go before going out of trend. Moreover, the appeal in Switch comes with its portability and unlike bulky consoles like X-box & PlayStation, it is also quite common for households with more than one gamer to own multiple sets of Switch so that each can play their favorite game.
Last but not least, Nintendo is finally looking to monetize its huge portfolio of Intellectual Properties with Super Mario movie launching in 2022 & collaboration with Universal Studios to open up theme parks across the globe.
From its daily chart, price is supported by the up trendline (in orange). Using classical Technical Analysis method to project the target level ¥80,000 is not a far-fetch as it has broken out of the symmetrical triangle formation. Traders may also wait for a pull back before buying to achieve a better reward-risk ratio. Possible level to look out for is between ¥64,000 to ¥65,000 where the upper boundary of the triangle is. Support level on the chart is currently around ¥57,600 to 61,300.
Mizuho Securities issued a Buy recommendation for Nintendo with a 12-month target price of ¥84,000. You may refer to the attached report for their investment rationale.
As usual, this writeup was broadcast to Clients on 31 May 2021 but posted here only on 3 Jun 2021.
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