BUY OR SELL-Is Nintendo growth fizzling or taking a breather?
* Nintendo virtually flat in past 3 months; Nikkei up 38 pct
* Hot new games, attractive valuation cited as support
* Off radar screen for now as crisis-battered shares rebound
* Smartphone new rival as games player (For more BUYSELL stories, click [BUYSELL/])
TOKYO, June 8 (Reuters) - Nintendo Co Ltd (7974.OS) shrugged off a global downturn to post record profits in the year to March as its Wii console and DS portable game player outsold rival machines from Sony Corp (6758.T) and Microsoft Corp (MSFT.O).
But with signs of a slowdown in Wii demand and the DS facing a challenge from Apple Inc's (AAPL.O) iPhone, Nintendo shares have stayed flat in the past three months, while the Nikkei average .N225 has climbed 38 percent.
Has Nintendo, which moved in line with the market last year and significantly outperformed in 2007, fallen out of favour?
TIME TO BOUNCE BACK
Japan's seventh-most valuable stock, last week showcased a new line-up of titles, including "Wii Fit Plus" and "Wii Sports Resort", raising hopes for a solid second-half performance.
"If people are expecting hardware sales to continue escalating, that's not going to happen. But what can happen is, with quality software, business can grow from that side," said KBC Securities analyst Hiroshi Kamide.
Software sales generate the majority of game makers' profits.
Nintendo's price-earnings ratio stands at 11 times, well below the Nikkei's average of 42 and the 16 times for Square Enix Holdings (9684.T), which makes "Final Fantasy" games.
Investors have paid little heed to the multiple, however, as the credit crisis has pushed many firms to the brink of failure and directed market attention to price-book ratio, which compares a company's market value with what it can be liquidated for.
Nintendo's price-book ratio is 2.6, twice as high as an average of 1.3 for the 225 companies in the Nikkei index.
Unlike traditional manufacturers, Nintendo relies heavily on employees' creativity and innovation for growth, and outsources actual game machine production, making its assets on the balance sheet light, and its price-book ratio relatively high. Continued...
