Nintendo vs Alphabet: who looks like a Better Buy pre-split?

Stock splits have grown in popularity over the past few years. Typically, a company does a stock split for a practical reason – the stock price has become too expensive, which creates a barrier to entry for potential investors, reducing the overall trading volume.

So far in 2022, we’ve seen Amazon AMZN do a 20-to-1 split, and there are a few more of note that are set to take place this year.

Two companies with stock splits coming in 2022 include Nintendo NTDOY and Alphabet GOOGL. Nintendo is set for a 10-to-1 split, and Alphabet will do a 20-to-1 split.

While investors have welcomed both splits, it raises a valid question: Which company looks like a better buy pre-split? Let’s take a closer look at each company to get a more specific answer.

nintendo

Nintendo NTDOY is responsible for many legendary franchises in interactive entertainment, including The Legend of Zelda, Super Mario Brothers, donkey kongand Pokemon.

Year-to-date, Nintendo shares have been significantly stronger than the S&P 500, down about 9% in value.

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Extending the timeframe to encompass a year of price action, we can see that NTDOY shares struggled quite noticeably, falling nearly 30% in value and significantly underperforming the broader market.

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Image source: Zacks Investment Research

Valuation levels have fallen sharply over the past five years. Nintendo’s current forward earnings multiple sits at 14.7X, a fraction of its 2018 high of 45.3X and well below its five-year median value of 20.4X. Additionally, the shares are trading at a tempting 13% discount to the S&P 500.

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Image source: Zacks Investment Research

NTDOY has enjoyed a blistering earnings streak, beating earnings expectations in ten consecutive quarters dating back to the end of 2019. In its latest quarter, the digital entertainment giant smashed the Zacks consensus estimate of $0.48 by a triple-digit rate of 110% and reported EPS of $1.01.

However, FY23 earnings are expected to decline 18% year over year. Although this seems like a red flag, let’s take a look at the backdrop.

During the pandemic, when lockdowns became widespread and the outside world was shut down, many people turned to digital entertainment, which greatly helped the bottom line. Now that we are gradually coming out of the pandemic, the demand for such entertainment has cooled considerably.

In FY24, the earnings picture turns positive, with the $3.71 per share estimate reflecting 1.5% year-over-year earnings growth.

Annual revenue is also expected to take a slight hit, with the sales estimate of $14.9 billion reflecting a marginal 1.1% decline in revenue.

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Image source: Zacks Investment Research

Alphabet

Alphabet GOOGL has grown from a search engine to a company operating in cloud computing, ad-based video and music streaming, self-driving vehicles, and more.

GOOGL shares have fallen year-to-date, falling about 26% in value and underperforming the S&P 500 by a decent margin.

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Image source: Zacks Investment Research

After extending the period over the past year, the story remains the same – GOOGL stocks have struggled, declining nearly 15% in value and slightly underperforming the S&P 500.

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Image source: Zacks Investment Research

Alphabet’s 19.6X forward earnings multiple looks a bit pricey. However, it is comfortably below its five-year median value of 27.1X and far from 2020 highs of 39.1X. Additionally, the stock is trading at a 16% premium to the S&P 500 forward earnings multiple of 16.9X.

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Image source: Zacks Investment Research

Alphabet has consistently reported strong bottom line results, beating expectations in eight of its last ten quarterly reports. However, in its last quarter, the tech titan shocked the world and missed the bottom line by 4.2%.

Additionally, for FY22, the estimate of $110.62 per share reflects a marginal 1.4% drop in year-over-year earnings, which might be considered a bit concerning. However, in FY23, the earnings picture turns positive again, with the estimate of $129.98 per share reflecting a strong 17% expansion in net income.

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Image source: Zacks Investment Research

The revenue forecast looks robust, with the $245 billion revenue estimate for FY22 forecasting a substantial 16% year-over-year revenue expansion.

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Image source: Zacks Investment Research

Conclusion

Nintendo is a great company that provides solid exposure to the growing gaming industry. In addition to video games, the company can generate various revenue streams through content merchandise in the physical world.

However, the company’s flagship console, the Nintendo Switch, is increasingly aging compared to the next-gen Xbox Series S | X deployed by Microsoft MSFT and Sony’s SONY PS5.

On the other hand, Alphabet is another stellar company that provides exposure to another rapidly growing industry – cloud computing. Cloud revenues have multiplied for the company; cloud revenue grew 47% year-over-year from 2020 to 2021.

It’s hard to pick a winner. However, I think the winner here is Alphabet, and here’s why – it’s one of the most innovative tech companies in the world, and it’s embedded itself so deeply into the internet that it seems unstoppable. Additionally, revenue and bottom line growth rates are much higher than Nintendo’s, and Alphabet’s exposure to the burgeoning cloud industry is undoubtedly a major strength that will continue. to help the company considerably.

Zacks names ‘only one best choice for doubling up’

From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.

It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could step in at any time.

This company could rival or surpass other recent Zacks stocks which are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.