Video game entertainment company Nintendo Ltd/ADR (OTCMKTS:NTDOY) has been one of the hottest stocks on Wall Street over the past several years.

In 2016, Nintendo hit its first home run in several years when the company launched Pokemon Go, a first-of-its-kind interactive, augmented-reality mobile game that gained instant mass popularity. That first home run sent the stock from $15 to $30.

Then, in 2017, Nintendo hit another home run with Switch, a first-of-its-kind video game console that integrated on-the-go gaming with at-home gaming. Switch, liked Pokemon Go, gained instant mass popularity and sent Nintendo stock significantly higher from $30 to $50.

Overall, over the past two years, the stock has jumped from $15 to $50 thanks to two huge catalysts which have thrust the company back into the video game spotlight.

But can this rally last?

I don’t think so. NTDOY stock is trading at levels it hasn’t seen in several years, buoyed by what seems to be Switch euphoria. Unfortunately, history says that such euphoria won’t last, and as such, the stock could be due for a big correction.

Here’s a deeper look.

How Nintendo Got Here

Nintendo stock got to this point of investor euphoria thanks to two big catalysts.

The first, Pokemon Go, came and went rather quickly. Nintendo launched the augmented-reality game in the summer of 2016. It was an instant hit, and everyone and their best friend was running around town and trying to catch Pokemon.

But then that catalyst faded, and Nintendo stock dropped off its 2016 highs. The financial benefits of Pokemon Go weren’t as great as investors had hoped, and the game’s popularity also waned over time.

But that didn’t matter. Nintendo stock was boosted by its second catalyst, the Switch, only a few months after the Pokemon Go catalyst faded. That catalyst had a much more meaningful impact on the financials. As the company sold a whole bunch of Switch units and Switch games, its financials dramatically improved, and the stock took off.

Now, we are more than a year removed from the Switch launch. Switch remains one of the hottest products in the video game world. And Switch-related euphoria remains baked into the stock’s valuation (NTDOY stock trades at nearly four times book value, essentially double its five-year average book multiple of 2).

Why Nintendo Could Fall

With all that Switch hype priced into the stock, Nintendo needs to deliver robust results in order for the stock to even stay at current levels.

But that likely won’t happen.

First off, this isn’t the first time a hardware catalyst shot Nintendo stock up to multiyear highs. Back in late 2006, Nintendo launched the Wii. Much like the Switch, Wii was the latest, greatest and hottest product in the video game world at the time.

As a result, everyone from The Guardian to Forbes to Bloomberg was talking about how the Wii had propelled Nintendo back into video game relevance.

Sound familiar? It is almost an identical situation to what is happening today.

The Wii bubble popped in dramatic fashion after consumer interest in the video game system significantly waned over the next several years. During that stretch, Nintendo stock fell from $80 to $10.

Current data points show that history may repeat itself. While the Switch has remained popular this year, other gaming systems like the Playstation 4 and Xbox One have actually been the big growth drivers of hardware sales this year. Indeed, year-to-date, the Playstation 4, not the Switch, is the best-selling video game console.

Could Switch demand start to unravel in 2018-19 much like Wii demand unraveled in 2008-09? Perhaps.

The bigger problem, though, is that NTDOY stock simply isn’t priced for any unraveling of Switch demand. And as such, considering the risk of weakening demand is very real, NTDOY stock looks like more risk than reward at current levels.

Bottom Line on NTDOY Stock

The company has hit back-to-back home runs over the past two years. But history says that such home run streaks at Nintendo are unsustainable. As such, NTDOY stock looks overvalued and over-hyped at present levels.

As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.