Is the market undervaluing this gaming stock?

In this segment of “3 Minute Stocks Updates” on Motley Fool Live, recorded on January 5, goofy contributors Toby Bordelon and Brian Feroldi discuss nintendoit is (OTC: NTDOY) 2021 successful and its good prospects for this year.

Toby Bordelon: Let’s talk about Nintendo. I just want to go through it real quick. We haven’t talked about this company in a while. Just a quick update here, 2021 has been a good year for Nintendo fans. We have a new Switch, the OLED Switch. I don’t know if any of you picked one or not, but a lot of people did. It was the best-selling console in the US for 2021, surpassing Xbox, PS5, and New Xbox.

Part of that is availability. You can actually buy a switch. You can find one quite easily. You can’t find a new PlayStation or a new Xbox so easily. That’s part of what powers this, I think. But it is also a cheaper price. It’s more portable. It’s just a more casual device.

Microsoft (NASDAQ: MSFT) and sony (NYSE:SONY) I think they’re getting all the attention because it’s high-end stuff there, the exciting console with the latest tech, but the Switch is super popular. It was a must-have device during the pandemic. I don’t know if you tried to get one in 2020. It was very hard to do. People were scalping these things on eBay (NASDAQ:EBAY) to double or triple the price at any given time.

Availability is much easier now, so that’s not a problem. But the market doesn’t seem to like the stock, which was down about 20% last year. That’s weird to me given how popular the Switch is. The more it sells, the bigger the audience to produce games. They produce their own games. It’s an internal network effect if you will.

The company is, I think, in a good position to take advantage of some aspects of the metaverse with that built-in audience, very popular casual games, well-known intellectual property, doing well under license. They could do well here. They could do well in the metaverse as it continues to evolve.

You talked about some of these licenses that currently exist. Nintendo World opened I believe at the end of last year in Japan at Universal Studios. They are soon opening areas at Universal Studio Parks in Florida, California and Singapore. It is happening. They now have LEGO and Nintendo sets. They take their intellectual property, they extend this popular intellectual property. There is a nostalgia effect, I think, for people of our generation who go there.

But it’s a little bit different from the others. They both control the games, they create their games, their own IP address and the hardware. That makes it different from something like Sony or Microsoft, which are more hardware focused, although they also make their own games, or someone like Activision (NASDAQ: ATVI) Where take two (NASDAQ: TWO), which is solid on the game side.

I don’t know if the market fully appreciates the flexibility and uniqueness of this small business model and the differentiation in terms of model and market position. It is a little different from what exists.

There’s not really a lot of major news here, but I just wanted to let people know about it. I like this business. It has been more or less the same in recent quarters. I honestly think that’s a good thing. A solid company you should check out.

Brian Feroldi: I had no idea the Nintendo Switch worked so well. We’re an Xbox family, so I didn’t think it was going to outsell Xbox. But do you think this is a title that video game investors should put at the top of their list?

Bordeaux: I think so. I think this is the one you should definitely consider because they have both pieces here. They have the content and hardware while being a pure-play video game company. Look at the other big hardware makers, Microsoft and Sony, it’s not pure gaming.

I think if you’re someone who says “I want to start investing in the video game industry” this is a great place to start. I don’t think you stop there. It’s definitely not the only company you want to have in your portfolio, but I think it’s hard to think of a better company as a good place to start investing in this space and learning more about it.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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