Nintendo (TSE:7974) Valuation Check as Switch 2 Sales Climb and Memory Costs Pressure Margins

Nintendo (TSE:7974) is in the spotlight after higher memory chip costs pressured margins just as its Switch 2 console takes off, a timing twist that is reshaping how investors think about its next hardware cycle.

See our latest analysis for Nintendo.

The recent drop, including a 1 month share price return of negative 18.27 percent, likely reflects investors recalibrating near term margin expectations, even as Nintendo’s 3 year total shareholder return of 103.06 percent suggests the longer term growth story remains intact.

If this console cycle has you rethinking your watchlist, it might be a good time to explore high growth tech and AI stocks that are shaping the next wave of interactive entertainment and platforms.

With the share price sliding even as analysts still see roughly 35 percent upside to their targets, investors now face a key question: Is Nintendo’s next growth leg mispriced optimism, or a genuine buying opportunity that markets have yet to fully reflect?

Price-to-Earnings of 33.6x: Is it justified?

On a last close of ¥10,650, Nintendo trades on a 33.6x price-to-earnings ratio, putting it at a premium to both peers and the wider entertainment industry.

The price-to-earnings multiple links what investors pay today to the company’s current profits, making it a key yardstick for a mature but still growing gaming franchise like Nintendo.

That 33.6x multiple looks rich against the JP Entertainment industry average of 18.4x and even slightly above the peer average of 32.3x, suggesting the market is pricing in stronger or more durable earnings than many rivals. Yet when set against the estimated fair price-to-earnings ratio of 37.8x, the current valuation looks more restrained, implying some room for the market to move closer to that fair level if growth and profitability hold up.

Explore the SWS fair ratio for Nintendo

Result: Price-to-Earnings of 33.6x (OVERVALUED)

However, rising component costs and a slower than expected Switch 2 adoption curve could compress margins and challenge the optimistic earnings assumptions embedded in today’s valuation.

Find out about the key risks to this Nintendo narrative.

Another View: Cash Flows Tell a Different Story

Our DCF model paints a cooler picture, suggesting Nintendo’s shares are trading above a fair value estimate of ¥9,369.3. In cash flow terms that leans toward overvalued territory, raising the issue of whether sentiment is running ahead of fundamentals as this cycle unfolds.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Nintendo for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 915 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Nintendo Narrative

If you see things differently or want to dig into the numbers yourself, you can build a custom view in just minutes, Do it your way.

A great starting point for your Nintendo research is our analysis highlighting 1 key reward and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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