Why Nintendo Stock Popped Today

Nintendo (OTC: NTDOY) stock rose 2.5% through 11:45 a.m. ET Wednesday after the Japanese video game giant confirmed that it will be releasing a successor to the popular Nintendo Switch gaming console later this year.

It's name: Nintendo Switch 2.

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Why investors like the news

OK. Admittedly that's a bit of an anticlimax, and something of a punt on naming the new console. Still, as The Fly points out today, Nintendo has good reason to tie its new console to memories of its old.

For one thing, the Switch 2 will be backward compatible with games sold for the original Switch, keeping that fanbase firmly tied to Nintendo, and encouraging them to invest in the new console. At the same time, Nintendo hinted that it is developing a new Mario Kart game to go with the new console.

As The Fly notes, Mario Kart 8 Deluxe was "by far the best-selling game" for the original recipe Nintendo Switch, with more than 64.3 million units sold through September of last year. This suggests a double-whammy of incoming good news and good revenues for Nintendo, from the sales of both the new console and the new game.

Is Nintendo stock a buy?

Nintendo also said it will provide further information on the Switch 2 in a presentation scheduled for April 2, 2025 -- meaning there's yet another upcoming catalyst that could drive this stock even higher. But is Nintendo stock a good bargain today?

Priced at 33 times trailing earnings, and with analysts predicting profits will decline in 2025 (the company's fourth straight year of negative earnings growth), you might not think so. The question investors have to be asking today, though, is whether Nintendo's Switch 2 announcement caught Wall Street by surprise -- and if the company's earnings will in fact rise this year, rather than fall.

Personally, I think that's unlikely. And in that case, the likelihood is that, no matter what Switch 2 does for Nintendo's sales, it's probably not going to be as profitable for Nintendo as investors hope. In which case, 33 times earnings probably is too much to pay for Nintendo.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Nintendo. The Motley Fool has a disclosure policy.