Is Nintendo Stock Setting Up for a Possible Breakdown Ahead of New CEO?
Unlike the rest of the market, Nintendo (OTCMKTS:NTDOY) has had trouble garnering upside moment. While the S&P 500 is up almost 20% from its lows two months ago, Nintendo stock is up just over 5%. Not bad, but certainly lacking what a number of other stocks have done.
That said, NTDOY stock has vastly outperformed the video game sector, with names like Activision Blizzard (NASDAQ:ATVI), Electronic Arts (NASDAQ:EA) and Take-Two Interactive Software (NASDAQ:TTWO) all under intense pressure. Unfortunately though, NTDOY just isn’t setting up in a bullish manner, despite the long-term positives it has working in its favor.
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Let’s explore the stock price before diving into other aspects of the company.
Trading Nintendo Stock
Downtrend resistance (blue line) is pretty evident on the weekly chart. This action is slowly but surely squeezing Nintendo stock lower. If this series of lower highs were accompanied by higher lows, one could make a case for a possible breakout. However, with just a shallow uptrend line and NTDOY being buoyed by this $32.50 level, the concern for a breakdown is growing. At least for me.
Making matters more grim are the moving averages. Like the $32.50 level, the 200-week moving average is acting as support and just like downtrend resistance, the 21-week moving average is squeezing Nintendo stock lower.
As the old saying goes, “the more times a level is tested, the more likely it is to break.” That doesn’t mean it’s a guarantee, but to see NTDOY stock continually knocked lower and run into support makes me leery that support will give way.
If it does, I wouldn’t be surprised to see Nintendo stock test the $25 level. That would require a fall of more than 25%, so perhaps that view is be a bit extreme. We just can’t rule it out if support gives way. Of course, this rhetoric changes on a move over ~$37 and close over downtrend resistance. In that case, NTDOY stock can start to repair some of the stock’s technical damage. Over this mark and a run to the 50-week moving average is possible. Above that and a run to $50+ is in the cards.
Bottom Line on NTDOY Stock
Technicals aside, how does Nintendo stock look?
One thing to consider is that Nintendo recently had a management change, with Doug Bowser (pictured above) set to take over as CEO on April 15. Aside from his all-too-fitting name — shared with Super Mario’s arch-nemesis — Bowser currently serves as the company’s senior vice president of sales and marketing and was a key executive for Nintendo’s Switch unit.
Switch continues to drive growth and investors are hoping that remains the case going forward. So,too, does Nvidia (NASDAQ:NVDA), a key chip supplier for the portable gaming system. In any regard, with more titles and a larger adoption rate of Switch, 2019 could certainly be a healthy year for Nintendo stock.
New titles will help drive game and unit sales, but Nintendo’s library of classic titles also serves as a gift that keeps on giving. At least in my eyes, it reminds me of Disney (NYSE:DIS), which continues to extract value out of its long-running classic title remakes.
While the company has revenue potential, it has even more balance sheet power. As of the most recent quarter, NTDOY stock was supported by a balance sheet with about $6.5 billion in cash and cash equivalents. The company has a further $2.36 billion in short-term investments. With no debt, this puts Nintendo stock in an incredibly strong position thanks to its balance sheet.
Total current assets of $14.8 billion easily outweigh the $3.6 billion in total current liabilities, while total assets vs. total liabilities is even more stark, at $18.2 billion vs. $3.9 billion. Despite this strength though, shares are teetering on a breakdown. If they can hold up, bulls should consider adding to their position.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long NVDA.
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