Nintendo (OTC: NTDOY) is one of those stocks that you just want to own but are not sure that you should own. How many times have you heard that the Wii is selling like hotcakes and that the company is beating the heck out of Sony's (NYSE: SNE) PlayStation 3 and Microsoft's (NASDAQ: MSFT) Xbox 360?
You've heard it a lot. Plus, you may even know how fun the Wii is from personal experience. Maybe you own one and are right now trying to finish the last level of Wario Land: Shake It!. And even if you don't own one, chances are one of your friends does.
All of this makes buying Nintendo seem like a simple decision. Then you wonder about whether the Wii is a fad and you question the chart of the company's ADRs. Does that look like a winner to you?
Not according to a Deutsche bank analyst who believes that profit growth may soon peak and that sales going forward may slow. He also seems to wonder whether popular software titles in the Nintendo franchise will continue to be as popular.You know, I sort of agree with the guy's assessment. At some point, the demand for the Wii will be pretty much satiated. Only problem is, I myself have predicted slowing demand in the past and have been dead wrong (although, please note, I mean that on a purely anecdotal basis; after I wrote back in December, talking about how there were so many Wii units in retail channels in my area that I didn't believe they all would sell, I found out soon enough that not only did all of them move, but that consumers who didn't get one were worried sick over whether they would have one to put under the Christmas tree).
I think the best way to look at Nintendo's ADRs is simply through price action. If you've followed it all, you'll notice that it's been a weak stock that is having a hard time approaching $40. The 52-week low is currently pegged at $31.50. The shares closed at $37.25 on Wednesday. I personally would definitely wait until they get back to the 52-week low before considering a position. Yeah, I know, it's possible they won't get back there. But in this market, you've got to stay patient and disciplined.
I own Microsoft; positions can change without notice.
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