The stock of Nintendo Co (OTCPK:NTDOY, 30-year Financials) shows every sign of being fairly valued, 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 $73.12 per share and the market cap of $69.7 billion, Nintendo Co stock is estimated to be fairly valued. GF Value for Nintendo Co is shown in the chart below.
Because Nintendo Co is fairly valued, the long-term return of its stock is likely to be close to the rate of 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:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Nintendo Co has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $16 billion and earnings of $4.358 a share. Its operating margin is 36.12%, which ranks better than 91% of the companies in Interactive Media industry. Overall, GuruFocus ranks the profitability of Nintendo Co at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Nintendo Co over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Nintendo Co is 39.2%, which ranks better than 85% of the companies in Interactive Media industry. The 3-year average EBITDA growth rate is 113.1%, which ranks better than 95% of the companies in Interactive Media industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Nintendo Co's return on invested capital is 69.13, and its cost of capital is 3.93. The historical ROIC vs WACC comparison of Nintendo Co is shown below:
In closing, the stock of Nintendo Co (OTCPK:NTDOY, 30-year Financials) is believed to be fairly valued. 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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