Shares of Nintendo have been on roller coaster ride with the viral explosion of Pokemon Go, the revamping of Mario, and the release of its new console, the Nintendo Switch.
Nintendo has rallied 73% over the past year, but has been stuck in a trading range of between $25 and $36 since July.
In a note sent out to clients on Wednesday, Jefferies analyst Atul Goyal reiterated his buy rating and $43 a share price target on the Japanese game maker. That represents a potential gain of 46%.
Nintendo shares tumbled 12% to 15% in both October 2016 and January 2017 after the company revealed details about its new console, but now that the console is out, Goyal says that Wall Street analysts had it all wrong.
"For a game console, we could have expected such a strong response in holiday season but we did not expect this to happen in the month of March," Goyal wrote.
In fact, consumers are paying exorbitant premiums to buy the console from third parties, 60%-100% above Nintendo's price. A good omen, Goyal says.
In short, Goyal notes, the "market had already given its verdict on Switch – that it was a flop." However, it looks like the market was very wrong, and now the bank is urging investors to use that mispricing to get in on the stock before it's too late.
Even more exciting, Jefferies notes, is that the value of the modern Nintendo, intellectual property from future mobile and console games, hasn't even been realized yet. Goyal notes:
Nintendo’s real value lies not in its hardware devices, but in its game development and IP. The largest potential monetization of Nintendo IP (a la Pokemon Go) can be mainly done on mobile-platform. And this we believe provides a structural growth backdrop for Nintendo’s earnings. But there is a sizable portion of the user base that loves to play Nintendo games on a desirable platform. Switch is certainly unique and fun. With the help of its strong game pipeline and with mobile-games, we believe Nintendo will generate strong software sales to its core-user base.
Jefferies reminds investors that Nintendo has "consistently under-estimated the strength of its popular products," and that the Switch may be the next case of this.
Nintendo has issued very conservative guidance for the Switch. Jefferies believes that Nintendo is not giving themselves enough credit and that the stock will benefit when Nintendo blows out their conservative numbers.
(The over the counter shares that can be bought in US Dollars are represented by ticker symbol: NTDOY)
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