The Analyst With the Only Sell on Nintendo Sees Concerns Looming
The Analyst With the Only Sell on Nintendo Sees Concerns Looming
(Bloomberg) -- In the great game of stock ratings, Nintendo Co. just lost a life.
Hirotoshi Murakami, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co., downgraded the Kyoto-based gamemaker’s stock to underweight, expecting its share price performance to lag that of peers.
Murakami is the only one of 26 Nintendo analysts tracked by Bloomberg to currently have a sell-equivalent recommendation on the stock, with 20 rating it a buy and five advising investors to hold. Negative ratings on Nintendo have been in the minority in the past five years, and this is the first time in a decade for Mitsubishi UFJ Morgan Stanley to recommend selling it.
With the shares up 21% in 2020, Murakami sees the positive factors that culminated in the company’s stronger-than-expected earnings and increased forecast earlier this month as fully priced in. The analyst said investor attention is likely to now shift to three concerns:
- a decline in sales starting next year for the company’s Switch game console, which was released in March 2017
- competition with Microsoft Corp.’s Xbox Series X and Sony Corp.’s PlayStation 5 consoles, which were both released just this month
- a drop-off of pandemic-sparked stay-at-home demand for videogames.
“The shares look slightly overvalued” due both to these concerns and to the weak lineup of titles due for launch through March, Murakami wrote, “which makes us think that a substantial overshoot of our earnings forecasts is unlikely.”
Murakami is far from the only analyst to express concern as the Switch reaches what might be the peak of a traditional console lifespan, though Nintendo management has expressed a desire to extend the cycle for its current flagship machine. Market watchers have long feared the same precipitous decline that occurred after the Wii’s popularity peaked. Titles in most of its major tentpole franchises have been released on Switch already, and the company is tightlipped about forthcoming launches.
There are still potential positives ahead. Murakami wrote that they include a possible “next-generation” console next year, such as reported by Bloomberg. The stock could also get a lift from new hit software titles as well as influence from activist investors, with ValueAct Capital having acquired a major stake earlier this year.
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