Is Gaming Giant Nintendo A Buy?

With new cases of the coronavirus spiking in the US and worldwide.

With the already historic unemployment levels and job losses in recent months.

With massive uncertainty in hospitals, banks, and other industries.

And with many Blue-Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.

There are few safe places to invest today.  And this number grows smaller every day this crisis lasts.

The key to continue compounding your investments and build wealth is to keep investing well over time.

Most people think the number one way to do that is to invest in assets that will grow your capital.

And this is a huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep.  And the more capital you keep the faster you can invest well to grow your wealth.

In recent articles I’ve shown you several stocks to avoid investing in.

Today, I want to answer Is Gaming Giant Nintendo A Buy?

Nintendo (NTDOY) is one of the worlds largest gaming companies.  It both makes video game consoles and creates video games.  And its having one of its best years ever because of the success of the Nintendo Switch gaming console.

Some of its most well-known characters are…

  • Super Mario
  • Zelda
  • Pokémon
  • Metroid 

And many others.

Its based in Kyoto Japan.  It has a $72.5 billion market cap. And it pays a large 2.4% dividend… Which is reason #1 to consider buying its stock.

Nintendo’s 2.4% Dividend

EDITORS NOTE – all numbers below when talking about $ amounts were converted from Japanese Yen to US Dollars.

Over the last decade Nintendo’s paid out a total of $4.78 per share in dividends.

At today’s count of 953 shares that’s equal to $4.56 billion paid out to shareholders in that time.

Plus, it raised its dividend 616% in the last decade from $0.58 per share in 2011 to $4.15 per share now in 2021.

These dividend payments help you earn cash if you take the money out.  Or allow you to buy more shares over time if you reinvest the dividends.

It can do this because it earns huge profits.  Which is reason #2 to buy Nintendo to Depression Proof Your Portfolio.

Nintendo Earns Huge Profits

Over the last decade it earned an average operating income margin of 7.9% per year.

I look for anything above 10%.

But this also isn’t the full story…

In the early part of the decade Nintendo had a rare flop video game console in the Wii U.  This lowered revenues, profits and cash flow drastically at the beginning of the decade.

Since the release of the hugely successful Nintendo Switch in March 2017 its operating profits exploded to an average of 20.8% in the 5 years from then to today in 2021.

And in the last 12 months its operating profit margin is an extraordinary 33.6%.

Another way to see how profitable a company is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 4.9% per year on average.

I call this the “Cash Machine” metric.

Again, this isn’t the full story for the same reasons above…

In the last five years this averaged 18%.  And in the last 12 months this is an awesome 35.4%.

I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.  If a company surpasses both thresholds it makes it a great operating business that is safe and valuable.

Nintendo’s numbers on both important metrics are now gigantic due to the tremendous success of the Nintendo Switch… This not only means it’s a great operating business… But show its one of the best and most consistently profitable in the world.

This already gives it a huge margin of safety… But these large profits also allow Nintendo to have zero debt… Which adds even more.

Nintendo Has Zero Debt

It has $13.4 billion in cash compared to $0 in debt.

This gives a gigantic amount of margin of safety to consider buying Nintendo stock.  And its huge profits and cash flow production allow it to continually reinvest in its future games and consoles which will help it continue growing for years.

But what about its valuation?  Is it cheap enough to buy? 

Nintendo IS Cheap

With the markets at or near all-time highs you’d expect a great stock like Nintendo to be selling at an enormous valuation.

But its not.

As of this writing its P/E is 19.

Its P/CF is 13.3.

Its forward P/E is 19.4.

And its enterprise value to operating income – EV/EBIT is 11.5.

On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.

And on EV/EBIT I look to buy stocks below 8.

Even though its slightly above the EV/EBIT I look for…

These show that Nintendo is undervalued right when its huge profit levels and no debt.  And this means buying its stock give you a huge margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning it in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning it going forward.

With Nintendo being undervalued, it gives you enough margin of safety to buy now.  

For this reason, I recommend you consider buying it to Depression Proof Your Portfolio.


If you’re looking for a solid, safe, dividend paying, stable, and enormously profitable investment to buy to Depression Proof Your Portfolio – consider investing in Nintendo. 

Click here to see some of the stocks we recommend to Depression Proof Your Portfolio.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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