Nintendo (7974) market trend/performance cycle analysis | 6 indicators to look at when reevaluating stock price after Switch 2

[Summary]

Nintendo (7974) sold 19.86 million units of Nintendo Switch 2 in the first year, and sales increased to 2,313 billion yen and operating profit of 360.1 billion yen in the fiscal year ending March 2026.

If you just look at the numbers, it's strong. Quite strong.

Still, the stock price hit a year-to-date low of 6,849 yen in mid-May 2026, and remains at 7,148 yen as of May 29. Although the market acknowledges that ``Switch 2 has sold'', it has not yet fully absorbed the sales pace in the second year, demand after price revisions, lower profit margins due to increased hardware ratio, and soaring component prices.

There is something I would like to correct first.

The number ``PER 18.80 times'' used by some people appears to be a credit multiple rather than a PER based on the market data that can be confirmed. Compared to the stock price of 7,148 yen on May 29, 2026, the PER based on stock tech publication is 26.58 times and PBR is 2.79 times.

If you make a mistake here, the entire article becomes a matter of "choosing numbers to make it look cheap".

The current state of Nintendo stock is that it cannot simply be said that it is cheap because it has a PER of 18 times. Rather, after factoring in the initial success of the Switch 2, we are now seeing whether it can truly recover in terms of profit margins and software revenue.

When making investment decisions, I want to follow the following six points.

*Switch 2 hardware sales volume

• Soft attachment rate *Gross profit margin/Operating profit margin
• Digital sales ratio
• First-party IP launch schedule
• Exchange rate assumptions and exchange rate sensitivity

Rather than jumping to conclusions, it is now time to check how these six indicators will perform in the next financial results.

First, correct the assumptions for stock price and PER

Nintendo stock's closing price on May 29, 2026 was 7,148 yen.

The year-to-date high was 10,890 yen on January 5th, and the year-to-date low was 6,849 yen on May 15. Even after Switch 2's financial results showed strong performance in its first year, the stock price has yet to catch up with the upper price.

What I want to pay attention to here is PER.

In other words, it is dangerous to write that Nintendo stock is "undervalued at a PER of 18 times."

The PER of 26 times cannot be called extremely expensive considering Nintendo's IP power and financial strength. However, if you take into account the risk of a slowdown in the second year of hard trading and a decline in the gross profit margin, it is difficult to say that the price will be left at a low price.

This is where the current difficulty with stock prices lies.

Strong in the fiscal year ending March 2026. However, the contents are hardware-driven.

Nintendo's fiscal year ending March 2026 was a very strong first year for the Switch 2.

If you just look at this, it's a pretty good financial result.

However, when you look at the quality, the picture becomes a little different.

Nintendo's gross profit margin fell significantly from 61.0% in the previous fiscal year to 39.3%. The reason is clear: with the release of Switch 2, the hardware sales ratio jumped from 43.7% to 66.7%.

Hardware generates sales, but profit margins are not as high as software.

This is a common scenario when new hardware is released, but the stock market doesn't miss it. Even though sales nearly doubled, operating profit growth remained at 27.5%. This is the reason why the market felt that ``even though the financial results were amazing, I couldn't buy it honestly''.

The real cause of stock price adjustment is not just “price increases”

The stock price adjustment in May cannot be explained solely by the Nintendo Switch 2 price revision.

Of course, price revisions are a big factor.

Nintendo announced on May 8, 2026 that the price of the Nintendo Switch 2 Japanese/domestic model will be revised from 49,980 yen to 59,980 yen, starting May 25, 2026. The price will change from $449.99 to $499.99 in the US and from 469.99 euros to 499.99 euros in Europe on September 1, 2026.

However, what the market disliked more than the price revision itself was the following combination.

According to a report from Fisco, the company's forecast for operating profit of 370 billion yen for the fiscal year ending March 2027 is about 100 billion yen lower than the consensus. Stock Forecast Pro also reports that the company's ordinary profit forecast for the fiscal year ending March 2027 is 430 billion yen, which is 25.8% below the IFIS consensus.

In other words, the market's disappointment is not due to the fact that they sold because the price went up;

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This is a complex factor.

How do you view the company's forecast for the fiscal year ending March 2027?

Nintendo's company forecasts for the fiscal year ending March 2027 are more realistic than flashy.

Operating income is expected to increase slightly.

However, ordinary income and net income are expected to decline significantly. In the fiscal year ending March 2026, foreign exchange gains of 44.3 billion yen, equity method profits, and gains on sales of investment securities pushed up profits. If this declines, net profit will likely fall more than it appears.

Additionally, Nintendo's forecast for the fiscal year ending March 2027 is based on 150 yen to the dollar and 175 yen to the euro. If the yen were to strengthen against this assumption, it would be a headwind for Nintendo, which has a high percentage of overseas sales.

Nintendo is financially strong. There is also a lot of cash.

Still, stock prices do not rise solely on the basis of financial security. What the market is currently looking at is, ``How much profit will I have left after selling the Switch 2?''

6 core indicators to see a full-fledged reversal

From here, we will organize the indicators that should be checked in the next financial results.

1. Switch 2 hardware sales volume

The number of Switch 2 units sold in the fiscal year ending March 2026 was 19.86 million units.

The company's plan for the fiscal year ending March 2027 is 16.5 million units, a 16.9% decrease from the previous fiscal year. Nintendo explains that sales will decrease in the second year due to the concentration of sales in the first year and price revisions.

What we need to look at here is not a simple year-on-year comparison.

Is quarterly progress on track with the company's plan to sell 16.5 million units? How long will demand persist in Japan after the price hike and in the US and Europe after September? Isn't demand for families and multiple units sagging?

These are the three points.

2. Soft installation rate

Hardware is only the entrance.

It is software and digital that make profits.

In the fiscal year ending March 2026, there were 19.86 million Switch 2 hardware units and 48.71 million Switch 2 software units. A simple calculation shows that the attachment rate is approximately 2.45. However, due to the handling of bundled software, the use of old Switch software, and the classification of Switch 2 Edition, caution should be taken when making mechanical comparisons.

Nintendo itself has explained the classification of the package version and download version of Switch 2 Edition, and the handling of upgrade passes. In other words, it is not enough to just do a rough division here.

What we need to see is how many Switch 2 users are purchasing software. And with the inclusion of third-party works, the platform is gaining depth.

3. Gross profit margin and operating profit margin

The gross profit margin for the fiscal year ending March 2026 is 39.3%. This was a significant drop from 61.0% in the previous period.

Operating profit margin also decreased from 24.3% to 15.6%.

This is the core of Nintendo stock right now.

Sales are strong. But profit margins have fallen.

In the fiscal year ending March 2027, it is necessary to see how the effects of price revisions, manufacturing costs, memory prices, tariff measures, and distribution costs will be affected. The price revision is a factor in improving profit margins, but Nintendo explains that both the cost increase and the impact of the price change have already been reflected in the company's forecasts.

In other words, for stock prices to rise, it is not enough to say that profits will increase because prices have increased.

The actual gross profit margin needs to improve and exceed market concerns.

4. Digital sales ratio

Digital sales for the fiscal year ending March 2026 will be 407.6 billion yen, an increase of 25.0% from the previous fiscal year. Digital sales accounted for 54.6% of software sales for dedicated game consoles.

This number is important when looking at Nintendo's profit structure.

However, it cannot be written that ``you can feel safe because it is over 50%''. It fluctuates annually and quarterly, and software bundled with hardware is not included in software sales or digital sales.

The expression you should see is

Can the digital sales ratio maintain a high level?

It is.

If digital versions, additional content, and Nintendo Switch Online grow, it will be easier to compensate for the drop in profit margin due to the rise in the hardware ratio. On the other hand, if the digital ratio slows down, the quality of profits will be difficult to improve even if the number of Switch 2 units increases.

5. First-party IP launch schedule

The biggest catalyst for Nintendo's stock is, of course, its own IP.

In the fiscal year ending March 2026, ``Mario Kart World'' sold 14.7 million units, ``Donkey Kong Bananza'' sold 4.52 million units, and ``Pokémon LEGENDS Z-A Nintendo Switch 2 Edition'' sold 3.94 million units.

From here on out, we'll need titles to support the Switch 2's second year.

Mario, Zelda, Pokemon, Animal Crossing, Kirby, Splatoon. Nintendo's strength lies not in hardware, but in its ability to develop this IP group into hardware, software, digital, movies, goods, and theme parks.

However, stocks will not rise based on the abstract theory that IP is strong.

You can see the release date, sales volume, profit contribution, and digital ratio.

The market is looking at that.

6. Exchange rate assumptions and exchange rate sensitivity

Nintendo has a high overseas sales ratio and is easily affected by exchange rates.

In the fiscal year ending March 2026, there was a positive foreign exchange impact of approximately 33.3 billion yen on operating income. Non-operating foreign exchange gains of 44.3 billion yen were also recorded.

The assumed exchange rates for the company's forecast for the fiscal year ending March 2027 are 150 yen to the dollar and 175 yen to the euro.

If the yen strengthens from here, it will be a headwind for profits. If the yen continues to weaken, it will provide a buffer against company forecasts.

However, foreign exchange is not our main business.

Even if ordinary income increases due to foreign exchange gains, if the software installation rate and gross profit margin are weak, the stock's valuation will not last long.

Illustrated: 6 confirmatory indicators for Nintendo stock

Investment stance: Confirmation phase rather than deciding when to buy

Nintendo stock is currently in a very interesting position.

Switch 2's adoption in the first year was strong. IP is also strong. Financial strength is also strong. So far, it's hard to doubt.

However, the reason why stock prices are not responding honestly is because the market is still asking the following questions.

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A PER of 26x is not an unreasonable level considering Nintendo's brand power.

However, there is still insufficient material to call the company ``undervalued'' immediately after the company's forecast for the fiscal year ending March 2027 fell short of market expectations.

For medium- to long-term investors, the key points to watch in the next financial results are clear.

• Are Switch 2 unit sales on track for the 16.5 million unit plan?
• Has demand collapsed in the Japanese market after the price increase?
• Will sales be able to maintain pace after September price revisions in the US and Europe?
• Will gross profit margin improve from 39.3%?
• Can the digital sales ratio maintain a high level?
• Is it clear when the first-party titles will be released?

If this is confirmed, the stock price will likely be reevaluated.

On the other hand, even if the number of hardware units is in line with the plan, if the recovery in software and digital sales is slow, stock prices may be stuck in a range for a while.

Nintendo is a good company, but right now we're not in a situation where we can buy it because it's a good company.

The numbers are good. The problem is the inclusion.

Summary

Nintendo's fiscal year ending March 2026 was a strong financial result as the first year of the Switch 2.

However, investment analysis should not stop there.

While hardware sales boosted sales in the fiscal year ending March 2026, gross profit margin declined from 61.0% to 39.3%. In the fiscal year ending March 2027, the number of Switch 2 units sold is planned to decrease to 16.5 million units, and the cost impact of soaring prices of components, mainly memory, and tariff measures is also factored in by approximately 100 billion yen.

At a stock price of 7,148 yen and a PER of 26 times, it is difficult to dismiss it as either cheap or expensive.

The future focus will not be on the number of Switch 2 units per se, but on how much software, digital, and IP revenue can be recovered from it.

In investment decisions,

Hardware sales progress, software installation rate, profit margin, digital ratio, IP pipeline, exchange rate assumptions

I want to check the set.

Rather than deciding that ``now is the time to prepare,'' it is time to check the quality of profits at the next financial settlement. Nintendo stock is a stock that investors who can wait that long will find easier to view.

Source/Reference materials

• Nintendo IR information “Fiscal Year Ended March 2026 Earnings Release”
• Nintendo News Release "Notice regarding price changes for our products and services"
• Stock Tech “7974 Nintendo Stock Price Information and Investment Analysis Information”
• SBI Securities “7974 Nintendo Stock price information
• Stock Forecast Pro "Nintendo (7974): 45.6% increase in ordinary profit for the fiscal year ending March 2026"
• Investing.com/Fisco "Nintendo ---Significant decline; current fiscal year earnings forecast is significantly lower than consensus"