TOKYO Shares in Nintendo Co Ltd 7974.OS plunged nearly 10 percent on Monday despite strong sales of its Wii game machine helping drive robust quarterly profits, hit by fears that a firmer yen could hurt earnings.
Analysts said the stock also came under pressure as some institutional investors, who had bought heavily into the stock during its meteoric rise over the past couple of years, pocketed profits amid a slide on global share markets.
But they said the shares -- which have fallen by a third in the past three months -- may have been oversold given Nintendo's rising production capacity and strong earnings momentum.
"This has little to do with the company itself, but a lot to do with market sentiment," said Mizuho Asset Management fund manager Yoshihisa Okamoto.
"In the current market environment, investors rush to sell at the first sign of negative developments or exhaustion of positive news."
Shares in Nintendo fell 9.7 percent on Monday, hitting their downward daily limit of 46,800 yen and extending their losing streak to a third trading day.
Nintendo shares had jumped more than fivefold in the two years to last October on white-hot demand for its Wii and DS game machines, zipping past heavyweights including Honda Motor Co Ltd (7267.T) and PlayStation 3 maker Sony Corp (6758.T) in market capitalization.
But the stock has pared one-third of its value since then, battered by the overall stock market downtrend and signs of weakening consumer spending in the United States.
Investors have also been concerned about the impact of a weaker dollar versus the yen, which erodes the profits of exporters like Nintendo when repatriated into the Japanese currency.
The dollar traded on Monday around 106.56 yen, after touching a low of 104.95 yen last week -- the weakest since May 2005.
Nintendo, the creator of the game characters Mario and Zelda, said last week its quarterly profit more than doubled in October-December, and raised its annual operating profit outlook for the third time in the current business year to March.
But the company left its annual net profit forecast unchanged as the yen's strength is expected to lower the value of its foreign assets, shifting investor attention to currency-related risks.
Analysts, however, said Nintendo's long-term growth potential will make the stock an attractive destination for investor money once jitters in stock markets and uncertainty in the global economy subside.
"In the United States and Europe, shortages of the Wii and DS are getting serious. Nintendo will surely boost production in the next business year," Rakuten Securities analyst Yasuo Imanaka said.
"And higher output will lead straight to higher sales of its game machines and game software. I think we are going to see Nintendo chalking up strong profit growth next year, again."
Analysts on average expect Nintendo to post 356.3 billion yen in net profit in the year starting in April.
Based on this estimate, its prospective price-to-earnings ratio is calculated at 18.6, roughly on par with fellow game creator Capcom Co Ltd (9697.T) and lower than Konami Corp's (9766.T) 19.3. (Reporting by Kiyoshi Takenaka)