The stock of Nintendo Co (OTCPK:NTDOY, 30-year Financials) gives every indication of being modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $76.7 per share and the market cap of $73.1 billion, Nintendo Co stock appears to be modestly overvalued. GF Value for Nintendo Co is shown in the chart below.
Because Nintendo Co is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 39.2% over the past three years and is estimated to grow 6.49% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Nintendo Co has a cash-to-debt ratio of 10000.00, which is better than 100% of the companies in Interactive Media industry. The overall financial strength of Nintendo Co is 9 out of 10, which indicates that the financial strength of Nintendo Co is strong. This is the debt and cash of Nintendo Co over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Nintendo Co has been profitable 8 years over the past 10 years. During the past 12 months, the company had revenues of $16 billion and earnings of $4.358 a share. Its operating margin of 36.12% better than 92% of the companies in Interactive Media industry. Overall, GuruFocus ranks Nintendo Co's profitability as strong. This is the revenue and net income of Nintendo Co over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Nintendo Co is 39.2%, which ranks better than 84% of the companies in Interactive Media industry. The 3-year average EBITDA growth is 113.1%, which ranks better than 95% of the companies in Interactive Media industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Nintendo Co's ROIC was 69.13, while its WACC came in at 3.99. The historical ROIC vs WACC comparison of Nintendo Co is shown below:
In short, Nintendo Co (OTCPK:NTDOY, 30-year Financials) stock shows every sign of being modestly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 95% of the companies in Interactive Media industry. To learn more about Nintendo Co stock, you can check out its 30-year Financials here.
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