Nintendo (TSE:7974): A Fresh Look at Valuation as Share Price Holds Steady

Nintendo (TSE:7974) shares have seen some moves lately, prompting investors to re-evaluate where the company stands today. The current stock pattern invites a closer look at both recent performance and longer-term trends.

See our latest analysis for Nintendo.

After a relatively steady year in the market, Nintendo’s recent share price has held its ground. The latest moves suggest investors are weighing signs of renewed growth potential alongside the company’s established strength. The one-year total shareholder return stands at roughly 0.6%, rising to 1.2% and 1.5% over three and five years respectively, indicating that momentum is steady but perhaps awaiting a catalyst.

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With steady growth and shares trading just below analyst targets, the question arises whether Nintendo is currently undervalued or if the market has already accounted for its anticipated future gains. Is there still room to buy in, or are investors simply keeping pace with expectations?

Price-to-Earnings of 50x: Is it justified?

Nintendo trades on a price-to-earnings ratio of 50x, noticeably above the industry average and the broader peer group. With a last close price of ¥12,630, the current valuation appears expensive when benchmarked against similar companies.

The price-to-earnings (P/E) ratio tells investors how much they are paying for each yen of future earnings. For established entertainment companies like Nintendo, a high P/E may point to market optimism about future profit growth or brand strength, but it can also suggest over-exuberance versus underlying fundamentals.

While the market may be pricing in continued earnings growth, Nintendo's expected annual earnings growth is below the high-growth threshold. The company’s P/E ratio stands well above both the JP Entertainment industry average of 21.9x and the peer average of 40.2x. The SWS Fair Price-to-Earnings Ratio is estimated at 47.8x, a level the market could revert toward if growth does not accelerate meaningfully.

Explore the SWS fair ratio for Nintendo

Result: Price-to-Earnings of 50x (OVERVALUED)

However, slowing revenue growth or an unexpected decline in net income could challenge the notion that Nintendo’s high valuation is sustainable.

Find out about the key risks to this Nintendo narrative.

Another View: Discounted Cash Flow Perspective

Looking from a different angle, the SWS DCF model suggests Nintendo’s shares are trading well above fair value. The current price is notably higher than our estimate, which raises fresh questions and challenges whether market enthusiasm is overshadowing the company’s true intrinsic worth.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Nintendo for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Nintendo Narrative

If you see Nintendo’s story differently, or want to form your own view based on the numbers, you can dig in and shape your narrative in just a few minutes. Do it your way

A good starting point is our analysis highlighting 1 key reward investors are optimistic about regarding Nintendo.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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