Nintendo Shares Will Hit Zero by October if Stock's Sell-Off Continues at June's Pace

Doomed since 1889.

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Nintendo's stock (NTDOY) has gone from darling to dog in record time. The shares hit a 2018 weekly closing low of $39.27/share today and there is no reason to believe that this sell-off is over. Nintendo has lost over $20 billion of its market capitalization since hitting a multi-year high of $58.45/share at the beginning of the year. The stock is down on the year, the month, the week, the day, and probably is down in after-hours trading as I write this. What exactly is going on with Nintendo's stock?

Nintendo's stock had a terrible June. Investors and analysts have been scrambling to explain why the stock is dropping and a common refrain has been that E3 2018 wasn't that great for Nintendo. It was rather amusing to see the news today that Nintendo Switch sales doubled in the week after E3. The media and analysts will keep pushing the narrative that Nintendo is struggling, but the company finds itself in its best financial position in years. 

Then why is the stock selling off so violently? If it were to keep selling off at the pace it unwound in June, Nintendo's stock would be at zero by October. These kinds of violent moves are not rare for Nintendo shareholders, and I think there are a few reasons why it is happening again.

Sadly, it isn't smaller retail investors who are moving this stock. Larger institutions have clearly soured on Nintendo as is indicated by the extreme stock trading volumes we have seen over the past few months. These firms have access to the Japanese shares of Nintendo which do offer options and added liquidity. To most of these firms, it is just easier to sell Nintendo and come back to it when it regains momentum or becomes cheap enough based on their own fundamental analysis.

Nintendo's stock is coming off of an amazing two year run on the back of Switch's massive sales success. From the bottom in 2015 of $11.80/share to the $58.45/share top earlier this year, Nintendo had given shareholders a 395% return in two years. This current sell-off is not surprising in the context of the broader move higher. While it is painful for long-term shareholders of the Big N, it honestly should be viewed as a buying opportunity for folks who felt like they missed out on last year's bull run. At some point, this sell-off will abate and the stock won't go to zero, but it felt like a good time to remind everyone that short-term sell-offs happen to stocks all the time. Sometimes when stocks are going down, they feel like they will never go up again.

While the financial world searches for reasons to blame Nintendo's stock price drop on, it is important to realize that nothing has changed fundamentally at the company. Market expectations may have gotten ahead of the company, but Nintendo finds itself in a very good place going into the back half of the year with the launches of Smash Bros Ultimate and Pokemon Let's Go Eevee and Pikachu. 


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.

Thanks to Doomed Since 1889 for the image used in our header.

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.

From The Chatty

    • reply
      July 6, 2018 4:28 PM

      The Lack of E3 surprises and Nintendo Labo (90$ for cardboard? really?) Some strange decisions. But they always come out on top.

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        July 6, 2018 7:12 PM

        Our Nintendo Labo was TOTALLY worth the price we paid for it. It is ridiculously cool. My kid plays with it everyday and creates other things with it. He even makes videos of himself and amiibos interacting with them. Labo is badass.

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      July 6, 2018 4:29 PM

      Man, if I had money I'd be watching for the bottom so I could snatch up a bunch of it at like $12/share. :D

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      July 6, 2018 4:32 PM

      I bought a few thousand dollars worth when it was trading at ~$23/share (after reading one of your posts about it). Do you think it will drop back to that? I thought about selling earlier this year at $55 but I didn't. Ugh.

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        July 6, 2018 5:34 PM

        I did the same and sold at 45. I think it’s a good entry point again now for a solid 50-55 long term. The Switch is just getting started, it has a long way to go yet.

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          July 6, 2018 5:37 PM

          I usually don't bother selling stuff, but it seems like with stocks like this I probably should. It doesn't seem like something that will keep growing quarter over quarter like Amazon or Netflix.

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            July 6, 2018 6:16 PM

            whatever you’re investing in, you should always have an exit strategy; have a price where you’ll be okay at selling, loss and profit while taking into account taxes.

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      July 6, 2018 4:37 PM

      Hmm, do I sell and max out my capital losses for the year or double down and buy more?

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        July 6, 2018 4:47 PM

        Why do you want to max out losses?

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          July 6, 2018 5:25 PM

          It's the only red in a sea of green.

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            July 6, 2018 5:37 PM

            Are you planning on selling your winners?

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              July 6, 2018 5:42 PM

              I've considered selling some long term stocks this year. If only I had a magic eight ball.

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                July 6, 2018 5:43 PM

                Selling low and buying high is the only way you’ll get your yacht

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                  July 6, 2018 6:02 PM

                  He's just prepping for the next big bull market where he can use all those deferred capital losses and live tax free!

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                    July 6, 2018 6:07 PM

                    My coworker bought a house 3.5 years ago for $900k and sold it for $1.65m this year. At some point I need to jump into this insanity before I can't buy anything.

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                      July 7, 2018 12:52 AM

                      Short of T6 stock I don’t really see how you could now without buying in Gilroy or Oakland. Prices are mental.

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                        July 7, 2018 7:26 AM

                        After this perf cycle I need to transfer to a team with a manager that isn't afraid of promoting people. Being L5 would help a lot, and I'd probably still need a roommate or two to make it work.

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      July 6, 2018 4:50 PM

      Still sucks you can't easily buy via Robinhood

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      July 6, 2018 4:56 PM

      The liberal media!!

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      July 6, 2018 5:28 PM

      What a repulsive click bait useless extrapolation of a title! Holy Shit! The temperature went up 20 degrees from this morning. We should all be boiled alive within days!! If You're going to be to stocks here at least have a semblance of respect for your audience.

      I dropped my phone! If it continues at that acceleration it should reach the speed of light in about a year!!

      If you take your stock history back more than a year you might notice that Nintendo's stock has been performing absurdly well. It jumped more in a couple weeks in 2016 than it has fallen from its peak. Perhaps some people realized that it was getting overvalued, sold off, and the reactionary nature of humans caused a bit of a tumble. It'll probably stabilize soon, and continue slowly upward unless Nintendo screws something massive up.

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        July 6, 2018 5:31 PM

        Sorry to hear about your phone.

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        July 6, 2018 6:17 PM

        Please understand

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        July 6, 2018 7:13 PM

        That’s exactly what the article said

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        July 6, 2018 10:31 PM

        I can't tell if you're inherently humorless or just didn't read the article

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          July 7, 2018 2:49 PM

          Just me over reacting to a headline that irrationally bothered me. Most people don't read beyond headlines, and something like this is going to leave some people with the idea that Nintendo is nosediving into failure by the end of the year. Yes, its stupid for them to miss the joke, but its going to happen.

          Also made me do some math, and notice c/g is interestingly close to 1 year. So, that is nifty.

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      July 6, 2018 5:31 PM

      This is what you get for trying to appease Smash fans Nintendo!!

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      July 6, 2018 6:10 PM

      If it were to keep selling off at the pace it unwound in June, Nintendo's stock would be at zero by October - stocks never act like that unless the company is about to go bankrupt


      One of the most important issues with Nintendo's stock from the viewpoint of an institutional investor is the lack of options trading alongside the stock - not true, there may not be options for NTDOY US, but there are options for 7974 JP, the actual stock.


      One of the most important issues with Nintendo's stock from the viewpoint of an institutional investor is the lack of options trading alongside the stock - extremely untrue, if anything, institutional investor has greater control/access over how they can trade nintendo stock due to their access to us and japanese markets. by having access to both, they can trade nintendo for roughly 12+ hours a day.


      In the absence of put options to protect against downside, the best path forward is to sell the stock and boy are they selling - no, if they believe a stock is going to selloff or going into a correction, its cheaper to just rotate the cash into another stock or instrument than to pay what would be a high premium to buy puts.


      you keep doing your analysis on NTDOY as if its the main listing. any serious volume posted in NTDOY is actually a trade done as 7974 JP during japanese hours for the purpose of being converted to NTDOY, and posted to the tape for reporting reasons. and because of this, 7974 and NYDOY will always trade at par, unless the conversions books are closed due to some corporate action. if you’re serious about this, you should focus on 7974 JP, the yen, and japanese economic indicators.

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        July 6, 2018 6:15 PM

        Can you point me to 7974 options?

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            July 6, 2018 6:24 PM

            No link? What expiry is this? Is the an options chain you can screencap?

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              July 6, 2018 6:27 PM

              best i got, i don’t trade options.
              http://chattypics.com/files/iPhoneUpload_craqjqqcwq.jpg

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                July 6, 2018 6:33 PM

                Ok, well it is damn near impossible to find this info without a Bloomberg terminal. Most readers aren’t buying 7974, so my point about NTDOY not having options still applies to them.

                Regarding major institutions, I was incorrect. They can hedge if they can find whatever options trade alongside 7974. You are right that it is cheaper to just sell, but for long-term investors, put options on NTDOY would have been helpful.

                I doubt many people reading my articles are able to buy Japanese shares, which is why my focus is on NTDOY.

                Please understand.

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                  July 6, 2018 6:48 PM

                  NTDOY is directly linked to 7974, they will always trade at par because market makers will use the current price of 7974 as a reference point.

                  when an investor trades NTDOY in the market, they are trading against market makers, who are taking a position into their account. at end of day, they will usually place an order to trade the equivalent shares of 7974 during japan trading hours to flatten out their books.

                  the only times NTDOY and 7974 do not trade on par is due to an extraordinary event, like a corporate action such as a cash/stock dividend, which is when banks will halt conversions between underlying and ADR.

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        July 6, 2018 6:45 PM

        Replaced institutional with US investors.

        Regarding the headline, I know. That is the point. This sell-off is pretty overdone in my opinion.

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          July 6, 2018 6:52 PM

          US investor, or retail, barely makes up the trading volume of NTDOY/7974, they’re not the ones driving down the price, its institutional. and even if US retail would sell at -10%, market makers have to quote them near par value of 7974 per exchange rules.

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            July 6, 2018 6:56 PM

            Yeah the volume that it has sold off at indicates large institutional dumping.

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              July 6, 2018 6:58 PM

              yes, so your article is still misleading.

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                July 6, 2018 7:04 PM

                Sadly, it isn't smaller retail investors who are moving this stock. Larger institutions have clearly soured on Nintendo as is indicated by the extreme stock trading volumes we have seen over the past few months. These firms have access to the Japanese shares of Nintendo which do offer options and added liquidity. To most of these firms, it is just easier to sell Nintendo and come back to it when it regains momentum or becomes cheap enough based on their own fundamental analysis.

                added this paragraph

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                  July 6, 2018 7:10 PM

                  then i would remove this part that’s just before it. because they’re contradicting.

                  One of the most important issues with Nintendo's stock from the viewpoint of US investors is the lack of options trading alongside the stock. This makes it impossible to hedge (buy insurance) on your stock position. Savvy investors who saw this drop coming to Nintendo can't defend their position with options like shareholders of other companies. In the absence of put options to protect against downside, the best path forward is to sell the stock and boy are they selling.

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      July 6, 2018 6:48 PM

      Announce F-Zero and I'm buying.

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      July 6, 2018 6:52 PM

      I want more ports! Give me those great PC RPGs so that I actually play then. Pillars of Eternity. Divinity 2.

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      July 6, 2018 9:51 PM

      Sweet, I'll buy some for the 100% guaranteed rebound PogChamp

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      July 7, 2018 6:49 AM

      Say I wanted to buy some Nintendo stock. Whats the best way to do it? I've only used the Robinhood app to pick up a few, but Nintender is available on it.