It was largely overlooked thanks to a sudden intraday pullback in the S&P 500 last Wednesday, Feb. 21. But on this day, video game investors received some very promising data. It should have vaulted names like Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY) significantly higher. Instead, Nintendo stock — and a host of others — barely budged. Some even fell on the day.
Now though, they’ve deservingly caught a bid, with NTDOY stock just a hair below 52-week highs. What now? First, let’s look at the data.
The numbers here are actually incredible. January video game sales — which includes games, consoles and accessories — soared almost 60% versus January 2017 and recorded the month’s best result in seven years. Total sales clocked in at ~$1.1 billion, up from $690 million last year.
Console sales jumped 119% and while the Xbox from Microsoft Corporation (NASDAQ:MSFT) and the PlayStation from Sony Corp (ADR) (NYSE:SNE) did well, it’s clear the Nintendo Switch is still making serious waves.
For game sales, it’s no surprise to see Call of Duty: WWII from Activision Blizzard, Inc. (NASDAQ:ATVI) and Grand Theft Auto V from Take-Two Interactive Software, Inc (NASDAQ:TTWO) come in at No. 3 and No. 5, respectively. However, Nintendo had a good showing.
It grabbed spots seven, eight and nine in the top 10, with Super Mario Odyssey, The Legend of Zelda: Breath of the Wild and Mario Kart 8, respectively. Despite not having any titles in the top five, its three titles in the top 10 beat out ATVI, TTWO and Electronic Arts Inc. (NASDAQ:EA) in terms of title count. Ultimately, overall game sales jumped 51% to $517 million.
What Does This Mean for Nintendo?
Based on this recent sales data, it’s clear that this group is maintaining very solid momentum despite being past the holidays. But that’s really no surprise, given how much momentum video games had before the holidays too. Further, Nvidia Corporation (NASDAQ:NVDA) continues to report strong GPU results and indicates that the trend in gaming isn’t going to weaken anytime soon.
In fact, speaking specifically on the Switch, Nvidia CFO Colette Kress said: “Additionally, the Nintendo Switch gaming console contributed to our growth, as it became the fastest selling console of all time in the U.S.”
Obviously, this is great news for Nintendo. 12 months ago, hardly anyone — if anyone at all — was looking for the Switch to have this much success. The good news is, when a game console has this much demand, follow-through demand for individual games follows. As the global economy continues to strengthen, video game companies are natural beneficiaries of increasing disposable income.
Additionally, at the end of January, Nintendo boosted its full-year guidance and reported blowout numbers. As a result, I would love to buy Nintendo on a pullback.
Trading Nintendo Stock
Despite all the hype as Nintendo stock was hitting new 52-week highs, we said that “it’s a reach to buy NTDOY stock.” With prices near $55 at the time, we said investors should wait for a pullback to at least the 50-day moving average near $51 and if possible, down to the mid-$40s. Ultimately, Nintendo stock hit a low near $48.
Again, I’d wait before buying Nintendo. Shares are not yet overbought like they were in January and the channel upper continues to extend higher. For that reason, I believe Nintendo can run to $60, or perhaps even higher if it’s a slow and steady grind higher.
Despite the potential upside, I would feel more comfortable waiting for ~10% correction in NTDOY. This would put Nintendo stock somewhere in the low-$50s, depending on where the high is.
Shares are not overbought and momentum is still with the bulls. And while I feel like upside still exists in Nintendo, I don’t know where my risk would be. That’s actually my biggest issue with buying the stock now; not the potential reward.
Does it pull back to $54 — a potential support level — or does it fall to the 50-day moving average at $51? I don’t know and the probabilities are too low for me to guess.
I may ultimately miss the move higher. But for now — and unfortunately — I’m holding off on Nintendo stock.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held a position in NVDA.
