Nintendo Stock Split: It Really Matters
Even reverse split is becoming frequent in this bear market as companies are taking support of reverse split to keep their share price up to and save it from becoming a penny stock. Some prominent example includes General Electric company which recently announced a reverse split. Even Sofi Technologies seems to be all lined up for a reverse split in the upcoming 12 months.
In this article, we will talk about video game specialists’ proposed Nintendo stock split and why it really matters for general investors.
Nintendo Stock Split: Details about Nintendo Stock Split
On 10th May 2022, Nintendo directors approved 10 for 1 stock split. The same will take place on October 1st Week. This is the first split in Nintendo Trading history. At present, Nintendo shares trade at 56,700 Japanese Yen (as of 27th May 3:00 Pm GMT) which translates to approximately $440 per share. Post-split, the same will trade at roughly 560 Japanese Yen or $40 depending upon the share price as on the date of split (October 1st week 2022).
The investors have been appealing for this stock split since 2019, but management decided to execute it finally in late 2022. Nintendo management is known to keep things almost secret till the final announcement and therefore this stock split also came as shocking news for investors. An appealing factor to initiating the Nintendo stock split is the ongoing trend of splits by big US companies to attract retail investors.
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Nintendo Stock Split: Impact of Stock Split on Nintendo Share Price
For most of the stock split articles available on the web, it is reiterated that stock splits will not make any real impact on the share price of the underlying stock. But this stock split is different. True that it will divide the share price by 10 and increase the number of outstanding shares by a factor of 10. Also, this is the fact it will not have any impact on the market capitalization of the company. But still, this split seems to be different from other splits.
Nintendo shares are primarily listed on the Tokyo stock exchange in Japan with different ADRs being traded on different stock exchanges. On the Tokyo stock exchange, an investor must buy shares in lots of 100 shares each. Add to it, that no broker is allowed to offer fractional shares. Four years back, the requirement was to trade in lots of 1000 shares each, and hence, things are slowly changing.
Now taking the example of Nintendo, a share trade at 56,700 Japanese Yen, if we multiply it by 100, it will require roughly 5.67 million yen or $44400. That is beyond the range of a small retail investor. Post Nintendo Stock Split, the share will trade at roughly 5670 Japanese Yen and investment will require only $4440, which seems to be in the range of retail investors (Google and Amazon shares traded at approximately $3500 six months back and it witnesses huge trading volumes).
This split will make the shares really more accessible to the retail traders, the theory behind going for forward split to attract retail investors actually fits appropriately in this case, and therefore it will make a real impact on the share price. This will actually lift the trading volume and most of that volume will be possibly directed towards buying hence, the share price is expected to increase post-split.
The effect of announcing the split was visible on the share price. After announcing the split on 13th May 2022, the share price went up from 56,340 Japanese Yen on 16th May to 59,810 Japanese Yen on 23rd May (which translate to roughly 7-8% gain in a week). However, stock has given up all the gains made due to this announcement in last five days because of bad global cues due to inflation fears in US and China lockdown news due to Covid 19 scare and it trades at same level of 56,700 Japanese Yen.
But the after effects of announcing stock split – that it gives a short term bullish push is visible in case of Nintendo stock.
However, US investors are likely to be least affected from this stock split. US investors are saved from the eccentricities of Tokyo exchange. Currently, two different American Depository trade at US stock exchange The NTDOY represents eight shares of original Nintendo’s original share. Also, there is no rule of investing in lot of 100 shares in US stock exchange and therefore a US investor can pick up NTDOY ticker for just $55 for investing. Post –split, this ADR will trade at $5.5 and that will further lower the bar of entry. Moreover, there are n number of brokers in US offering fractional shares and hence we can safely assume that there is no lower limit for Nintendo investment in US.
But, post –split, share price is likely to receive bullish push from the perceived larger interest from Japanese investors and that is going to entice US investors.
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Nintendo Stock Split: Does Split Makes Nintendo a Buy?
For start, stock split is a step in a right direction and very apt for stocks like Nintendo trading in Japanese market at such share price with imposed restriction of buying in lots of 100 shares. But that itself does not make it a buy at current level before split.
With the announcement of this stock split, financial results were also declared for fiscal year ended March 31 and an investor needs to look at these results for making appropriate decision. The total revenue came at 1.69 trillion Japanese Yen, down 3.6% YoY. The net profit also reduced to 477.6 billion yen (down by 0.6% YoY). Management reported that there is drop in Switch console sale from 28.83 million in previous 12 months to 23.06 million in last financial year. However, software sales increased 1.8% YoY due to strong demand of games like “Mario Kart 8 Deluxe”.
Overall, the financial results are good and Nintendo is a company with huge fan following, but currently every other stock is facing the heat due to global bearish sentiments. Nintendo has more than 100 million annual playing users and the demand will remain strong in the future, and therefore an investor should invest in shares if he believes in the business model of the company. Stock split in itself does not make a particular stock a buy. However, there is anticipated bullish push post-split, and if investors want short term gains, they can think of investing just prior to split, like in mid-September 2022. `
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