Traders chasing Pokemon dream now battle over Nintendo’s value

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 high-flying 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, 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 United States, Canada, the 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. “The hype over the game is huge. There’s been nothing like this since ... I can’t remember really.”

The surge 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. 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.

“It is possible that Nintendo is on the frontier of pioneering new trends in video gaming,” said Deutsche Bank analyst Han Joon Kim. “However, we would prefer to see a strong indication of such before considering ascribing a valuation premium to the stock.”