TOKYO -- Video game-related stocks were a rare bright spot in the Tokyo market Wednesday, as investors sought refuge in Nintendo, Sony and others amid a sea of red stemming from growing unease over the health of European banks and falling long-term rates in Japan.
Nintendo ended Wednesday slightly higher at 27,130 yen ($270). After a dramatic roller-coaster ride in July, the company's stock has been gradually recovering. "It could rise further to test the year-to-date high (32,700 yen) posted on July 19," said Norihiro Fujito of Mitsubishi UFJ Morgan Stanley Securities.
Investors have been drawn to Nintendo's competitive content. Following up on the hugely popular "Pokemon Go" smartphone game, the company is gearing up to release "Super Mario Run" for the iPhone. It is also expected to launch the Nintendo NX game console next year. "Major buying incentives are lined up," said Takeshi Koyama of Mizuho Securities.
Other video game-related stocks, such as DeNA and Bandai Namco Holdings, are also doing rather well. There are growing expectations that virtual- and augmented-reality technologies will create lucrative business opportunities, possibly beyond what most people can now imagine, for the video game industry. This optimism is sending those stocks higher. Goldman Sachs estimates that the global market spawned by such technologies will be worth $95 billion in 2025.
Yet stock analysts are having difficulty evaluating target prices for Nintendo shares in the near term. Nomura Securities' price guidance sits at the bottom at 15,200 yen, while 40,300 yen from Mitsubishi UFJ Morgan Stanley Securities is at the opposite end.
UBS Securities Japan has a target price of 15,600 yen for Nintendo shares, with a "sell" recommendation.
"We cannot figure out how much the new game console may contribute to earnings, since we only have limited information about it," said Sumito Takeda at UBS Securities Japan. Considering this, current "long-term growth expectations (for Nintendo) are excessive," he added.
By contrast, Hideaki Kuribara at the Tokai Tokyo Research Institute sees Nintendo outperforming the market, with a target price of 35,000 yen. "Nintendo is a major intellectual property holder that has just a handful of others to match in the world," he noted. Once the company successfully launches the new game console, Nintendo "will enter a new period of earnings growth," Kuribara reckoned.
Playing the odds
The large disparity in analysts' expectations highlights the difficulty of assessing video game companies' earnings prospects.
"It is difficult to evaluate Nintendo's corporate value because content and other non-financial information weigh so heavily," argued Shingo Ide of the NLI Research Institute.
For investors, fears of missing out on a huge upside potential compel them to keep their skin in the game, as Nintendo stock still has a long way to go to reach its 2007 all-time high of 73,200 yen.
"We won't be able to produce returns unless we keep up with market trends," an asset manager at a Japanese investment fund said, explaining the quandary in making such portfolio decisions.