Nintendo (OTCPK:NTDOY) business is poised to benefit from COVID-19. Last quarter Nintendo reported top-line growth of 108% and operating income growth of 576%. These results were even more impressive given there were shortages of Switch throughout the quarter. Despite this strength Nintendo trades at 23x last year’s earnings (excluding cash), while on track for significant earnings growth likely for 2020. Still with the Switch entering its fourth year, should investors be cautious adding during the peak of the cycle?
Concerns around Switch units are likely overdone for a few reasons. First, the Switch platform converged the home console and portable form factors. With the launch of Switch Lite, the installed base opportunity for growing in portable is underappreciated. The average sales for Nintendo home consoles is 47M and portables 108M. Below is a historical distribution of console sales by platform.
Nintendo Hardware Unit Sales: