The market cap of Nintendo passed Sony’s and Matsushita’s this week. The Wii console has been a fantastic success and so has the DS handheld game player. There’s no doubt that Nintendo is the king of video game equipment but life is not all about games. I don’t cover NTDOY at HEDGEfolios because it doesn’t meet my requirements but when I saw this market cap story, I decided to check out what I have been missing.

Even though I don’t play video games, I am impressed with Nintendo’s increasing dominance but not their stock at this point. My biggest issue is that NTDOY is a pureplay in an industry that people want and do not need. I am not going to call them a fad, but there are similar risk elements in buying a stock that is so narrowly focused and subject to competition from the next new hot thing. Nintendo is at the pinnacle of its industry and given my value orientation, I just don’t get too excited about buying a risky stock at a peak. A good entry would have been last June at $22, not now that NTDOY is trading 100% higher. Obviously, I am not giving a recommendation to buy or sell this or any stock, but the valuation is concerning to me.  SNE has diversified products and revenues 8 times greater than NTDOY with a forward PE about 50% less expensive.  Note that I have a DOWN signal on SNE since June 11, so I am not overly excited about that one either.  If you like playing video games or like playing games with momentum stocks, NTDOY seems about as attractive as its products.  Believing that its market cap will stay above SNE in the long term - that is not such a good game strategy.