Traders battle over worth of soaring Nintendo stock
After investors pushed up Nintendo Co. shares with a fervour only matched by gamers chasing Pikachu, traders are now locking horns over how much the highflying stock is worth.
Bears have boosted short interest in Nintendo to its highest in five months after the stock doubled in just over a week. The other camp includes Yasuo Sakuma of Bayview Asset Management Co., who says the rally has long-term potential as the mobile app Pokemon Go is rolled out to more countries and the gamemaker expands its location-mapping technology to the rest of its lineup, including Super Mario Brothers and Zelda.
“The way the stock has risen is abnormal,” says Sakuma, Tokyobased chief investment officer for the $2.6-billion fund manager. “For now, the stock needs to cool down, but there isn’t enough evidence to say that the 4 trillion yen ($38 billion) in market cap for the company is too high.”
Nintendo added $18 billion to its market cap after releasing Pokemon Go on July 6, with the mobile game becoming an instant hit in countries including the U.S., U.K. and Australia. The total value of trading in Nintendo was higher than any other company in Tokyo Stock Exchange history on Tuesday, when $6.6 billion worth of shares changed hands — more than the equity turnover for exchanges in Hong Kong, Australia, Germany and Switzerland that day. On Wednesday, the stock tumbled 13 per cent, the most in five years.
“It’s been nuts,” said Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia Ltd. “The hype over the game is huge. There’s been nothing like this since ... I can’t remember really.”
The surge in shares is hard to justify with fundamentals, even when factoring in potentially substantial billing revenue from in-app purchases, said Sumito Takeda, an analyst at UBS Group AG. Given that Nintendo effectively owns less than a third of the game — with Niantic Inc. holding the rest — profits are likely to grow by just five per cent for Nintendo, said Deutsche Bank AG.
“It is possible that Nintendo is on the frontier of pioneering new trends in video gaming,” Deutsche Bank analyst Han Joon Kim, who downgraded the stock to hold from buy, wrote in a report on July 18. “However, we would prefer to see a strong indication of such before considering ascribing a valuation premium to the stock.”
Even after Nintendo shares dropped on Wednesday, the shares trade at more than 100 times projected earnings, the seventh most expensive stock among almost 2,000 companies on the Topix.
Sakuma says Nintendo’s strength lies in the potential for growth in the technology behind Pokemon Go, and Nintendo is likely to diversify further away from hardware.
“The company now has the power to change sentiment throughout the whole market. This is something we see maybe once a decade, at most,” he said. “The potential for the game is tremendous.”