Video games emerged as one of the clear winners of the pandemic. Though the industry could easily suffer a slight decline in 2021 as people return to life, as usual, there will be a long-term uptick in user growth.
The top three video game hardware makers have been engaged in a decades-long battle for consumers. Peruse the online message boards about video games and you will find good arguments supporting each of the industry titans.
Investors willing to sift through the numbers and play some games on each of the top three consoles to get a sense of their unique merits will likely agree Nintendo (NTDOY) and Sony (SNE) are the top video game, hardware makers. Though Microsoft (MSFT) is certainly a threat to these industry stalwarts, the company’s XBOX Series X and S consoles will likely remain in a distant third place well behind the Nintendo Switch and the Sony PlayStation 5.
NTDOY was trading around $40 at the start of the pandemic. The stock jumped up to $82 in December and returned to this level once again in February. Profit-taking has since caused the stock to slide down to around $70. Though NTDOY can certainly be criticized for resting on its laurels with the uber-successful Nintendo Switch console, there is also an argument to be made that this console is a money-printing machine so there is no reason to risk bringing a brand new console to market for the foreseeable future. The bottom line is those purchasing the Switch console and NTDOY games are not as concerned with the look of their games’ graphics as other gamers. NTDOY executives deserve credit for understanding their target audience and choosing to focus on improving the fun factor of games rather than overemphasizing their aesthetics.
NTDOY has a C grade in the POWR Ratings. The stock has an A in the quality component, a B in the Momentum component, and a C in the Value component. Investors who would like to know how NTDOY grades out in the rest of the POWR Rating components such as Sentiment, Stability, and Growth can do so by clicking here.
Out of the 24 publicly traded companies in the Entertainment – Toys & Video Games category, NTDOY is ranked smack dab in the middle at number 12. You can learn more about the stocks in this industry by clicking here.
NTDOY has a forward P/E ratio of 20.19. This is a moderate P/E ratio considering the stock is about $11 away from its 52-week high of $82.55. Keep in mind, some publicly traded tech companies have forward P/E ratios in the hundreds.
SNE has a POWR Rating grade of B. The stock has an A in the Sentiment component, a B in the Growth component, and Cs in the Value and Momentum components. You can find out how SNE fares in the Quality and Stability components of the POWR Ratings by clicking here. Of the 18 publicly traded companies in the Entertainment – Media Producers space, SNE is ranked third. Investors who would like to learn more about the stocks in this space can do so by clicking here.
SNE is currently trading at a forward P/E ratio of 16.74, meaning it has considerable value as it is currently trading around $97. The top analysts have established an average target price of $100.65 for SNE, indicating it has around 5% downside. Though the worldwide chip shortage has the potential to take a chunk out of SNE’s PlayStation 5 sales, the shortage is only temporary. SNE bears also like to point out the fact that SNE sells its new console at a loss. However, video game console makers have historically sold hardware units at a loss to make up the shortfall across posterity through software sales along with the sale of gaming-related accessories. As an example, SNE is raking in the cash with sales of the insanely popular Ghost of Tsushima game. SNE publishes this title and also owns the game’s developer, Sucker Punch Productions.
Which is the Better Investment?
SNE is the better investment. SNE has a history of churning out one successful console after another. In comparison, the success of NTDOY’s Switch console is somewhat of an aberration. This is not to say NTDOY will not replicate the Switch’s success with future consoles yet the company doesn’t appear to have a plan in place for additional hardware. Add in the fact that SNE has superior POWR Ratings grades and choosing between these two gaming powerhouses becomes that much easier.
SONY shares rose $1.01 (+1.04%) in premarket trading Wednesday. Year-to-date, SONY has declined %, versus an 11.95% rise in the benchmark S&P 500 index during the same period.
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.