What's the Deal with Nintendo's Recent Stock Price Drop?

Will short-term pain in Nintendo shares lead to long-term gains for shareholders?

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Investors across the world have been scratching their heads about Nintendo's recent drop in share price. There are quite a few theories about the stock's sudden drop over the past week that involve a bunch of rumors. Dr. Serkan Toto, CEO of Tokyo-based games industry consultancy Kantan Games Inc., proposed a decent theory on Twitter earlier this week.

Nintendo has not confirmed anything related to any rumors. Some analysts are blaming weak technicals on the stock chart for the decline, while others are saying that the market is trying to discount a disappointing E3 showing from the Big N. The largest two day decline in the stock since 2016 has a lot of investors spooked, but anyone who claims to have the reason is purely speculating. 

Nintendo's stock has had a massive run in the past three years. After bottoming out and being left for dead in 2013, the shares finally gained some momentum in 2015. The Nintendo Switch added fuel to the fire and Nintendo shareholders were rewarded with a massive return on their investment. In January 2018, on the back of a stellar quarter earnings report, NTDOY (Nintendo's ADR) hit a multi-year high of $58.45/share.

The next three months on the chart formed a reversal strategy to the downside. In February, NTDOY traded inside the massive range set in January between $45.21/share and $58.45/share. In March, the stock attempted to break out to a new high but only reached $57.96/share before reversing back into February's trading range. In April, the stock had a monthly sell signal when the stock broke below $54.21/share. The failed attempt to break out had turned into a breakdown in share price that continues to this day. This is not any speculation about what will happen next week, this is simply a detailed look at the breakdown of the stock's chart in the past four months. This is highlighted by the stock's inability to attain equilibrium by staying inside a monthly range for the past three months. What I find most impressive with the stock's recent downturn is that it still hasn't broken below the range set in January. A break below $45.21/share could spell more trouble for shareholders, but until then the stock remains inside the previous quarter's trading range. 

This is all technical mumbo jumbo to many investors and traders, but it is an explanation of what has happened and how to react to data as this selloff develops. It is not surprising to me at all that a stock with a meteoric rise from $11.80/share in 2015 to $58.45/share in 2018 would have some consolidation of the move. That is what I believe is happening right now to the stock, and fearmongerers are scaring out the weak hands who were chasing momentum early in this year. Longer-term investors should be happy to see some of the froth come out of the stock as it will most likely set up for a nice continuation of the bull market that began in 2015.

There is a saying on Wall Street: "Buy the rumor, sell the news." In this case Nintendo shareholders are selling rumors. It remains to be seen if investors will be scrambling to buy the news when Nintendo announces their plans for 2018 at E3. Nintendo remains Super Mega Buy-rated in our Game Trader Video Game and Tech Stock Ratings.


Full Disclosure:

At the time of this article, Asif A. Khan, his family members, and his company Virtue LLC had the following positions:

Long Nintendo via NTDOY shares


Investors should do their own research or consult their advisor before acting on this information. This is an educational article and investors should consider each recommendation based on their own risk tolerance and suitability.

CEO

Asif Khan is the CEO and majority shareholder of Shacknews. He began his career in video game journalism as a freelancer in 2001 for Tendobox.com. Asif is a CPA and was formerly an investment adviser representative. After much success in his own personal investments, he retired from his day job in financial services and is currently focused on new private investments. His favorite PC game of all time is Duke Nukem 3D, and he is an unapologetic fan of most things Nintendo. Asif first frequented the Shack when it was sCary's Shugashack to find all things Quake. When he is not immersed in investments or gaming he is a purveyor of fine electronic music. Asif also has an irrational love of Cleveland sports.

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