Nintendo will stay (Wii) Fit even if the Yen rises vs. the USD.
Bull Pen:
At the end of January Nintendo reported suberb results for the nine month period ending December 31, 2007. Hardware sales cannot meet demand yet consumers prefer to wait for the Wii rather then buy a PS3 or Xbox. The reason for consumer patience is exciting – both the Wii and the DS handheld appeal to non-traditional gamers – their customer base is expanding rapidly. Since Nintendo produces or owns many of the games sold for it's hardware, it's future profits based on today's hardware sales look great.
Bear Den:
The Nintendo ADR is not cheap. Assuming the consensus 08 earnings of USD: 1.35 (see ADR.COM), five years of 40% yoy growth with zero perpetual growth (because in five years technology can change a lot), and a 10% discount rate, then NTDOY's present value is $59-$60. At Friday's close of 55.2, NTDOY is only selling for 10% below it's intrinsic value. Also, the company acknowledges the negative affect that a strengthening yen would have on their bottom line (see: http://www.nintendo.co.jp/ir/en/library/events/080125qa/index...
Conclusion:
NTDOY is too strong a story to miss out on. But due to currency & consumer spending concerns, only a small position is warrented – 2.5% of my model porfolio.
References:
Article: http://techon.nikkeibp.co.jp/english/NEWS_EN/20080128/146363/...
Company Financials: http://www.nintendo.co.jp/ir/en/index.html
$55.2 (02/09/08)
