A Fresh Look at Nintendo (TSE:7974) Valuation Following Recent Share Price Pause

Nintendo (TSE:7974) shares edged slightly lower today, slipping 1.4%. This move follows a relatively quiet trading session with no major company news released. Investors are left to weigh recent performance and valuation metrics.

See our latest analysis for Nintendo.

With Nintendo’s share price up more than 53% so far this year and an impressive 72% total shareholder return over the past twelve months, the recent slip feels more like a pause rather than a reversal. Momentum remains firmly on the company’s side after such a strong run, which suggests that investors are recalibrating expectations rather than abandoning the growth story.

If Nintendo’s recent surge has you curious about other opportunities, now is a great moment to explore fast growing stocks with high insider ownership.

But with shares trading near all-time highs, investors must now ask themselves whether Nintendo is undervalued after such gains, or if the market has already priced in every bit of its future potential.

Nintendo’s price-to-earnings ratio stands at 43.9x based on the latest close of ¥13,905, making it look expensive relative to both its peer group and the broader entertainment industry.

The price-to-earnings (P/E) ratio measures how much investors are willing to pay for each yen of current earnings. For a major entertainment company with widely recognized franchises, the P/E highlights how the market is weighing sustained profit generation and future growth prospects.

At 43.9x, investors are pricing Nintendo shares above the average for direct peers (35.8x) and notably above the JP Entertainment industry average (22.5x). This premium suggests that the market is confident in the company’s blockbuster franchises and its ability to post future earnings growth. However, it also sets a higher expectation for future performance. Compared to the estimated fair P/E of 46.7x, the current multiple is relatively close to what the market could reasonably support given Nintendo’s growth profile.

Explore the SWS fair ratio for Nintendo

Result: Price-to-Earnings of 43.9x (OVERVALUED)

However, risks remain, such as slowing profit growth or negative surprises in upcoming earnings, which could quickly test investor conviction in Nintendo’s rally.

Find out about the key risks to this Nintendo narrative.

While Nintendo looks expensive on earnings multiples, our SWS DCF model suggests a different story. According to this approach, the shares are currently trading well above our fair value estimate. This challenges the market’s optimism and raises the question: is sentiment running ahead of fundamentals?

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 877 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.

If you see things differently or want to reach your own conclusions, you can dive into the numbers and craft your own take in just a few minutes using our tools. Do it your way.

A good starting point is our analysis highlighting 1 key reward investors are optimistic about regarding Nintendo.

Don’t let Nintendo’s story be the last opportunity you act on. There is a world of high-potential stocks waiting that you do not want to miss.

• Tap into ongoing technological disruption by checking out these 24 AI penny stocks, which are making waves in artificial intelligence research and real-world applications.

• Boost your income goals with these 17 dividend stocks with yields > 3%, featuring attractive yields above 3% and robust fundamentals for reliable long-term returns.

• Ride the innovation wave at the frontier of computing with these 28 quantum computing stocks, where select companies are driving quantum breakthroughs and reshaping entire industries.

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.

Companies discussed in this article include 7974.T.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com