The success of Nintendo's new console, the Nintendo Switch, has spurred renewed interest in Nintendo Co. Ltd. (OTC: NTDOY) from prospective and current investors. The company reported a huge increase of 261% in its operating profit year-over-year and announced that the Switch had outsold the company's previous console, the Wii U, in less than nine months. The company has also seen its push to put Nintendo-branded games on smart devices pay off and saw income from the sector rising to 29.1 billion yen. The company now expects to sell 15 million Switch consoles before their financial year comes to an end in March 2018. 

Overall, things are looking much, much better for Nintendo than they did in previous years. In 2014, the company lost $46 billion but has clearly turned their fortunes around, currently sitting at a $53.8 billion market cap.

Nintendo is headquartered in Kyoto, Japan, and the company's stock trades on the Tokyo and Osaka stock exchanges. If U.S. investors want to know how to buy Nintendo's stock and benefit from the success that the Switch has brought to the company known for "Super Mario" and "Zelda," there are a few ways for them to get their hands on Nintendo's stock.

American Depositary Receipts

U.S. investors can acquire Nintendo's stock through American Depositary Receipts (ADR), which are traded on U.S. stock markets. ADRs are a relatively old financial innovation, conceived in 1927, and can represent one share, a number of shares or a fraction of a share in a foreign corporation. For example, one ADR may contain 10 foreign shares or one-tenth of a foreign share. ADRs are administered by banks or brokerages and help investors hold interests in foreign corporations, diversify their portfolios and diminish the costs and taxes associated with holding stock in foreign companies.

In Nintendo's case, U.S. investors can purchase a Nintendo ADR traded over the counter (OTC) with the ticker symbol NTDOY. One NTDOY ADR represents one-eighth of a Nintendo share traded in Japan. Thus, a U.S. investor needs to acquire eight units of NTDOY to equal one ordinary share of Nintendo. There is another Nintendo ADR traded over the counter in the United States that uses the ticker symbol NTDOF. One NTDOF ADR equals one ordinary share of Nintendo traded in Japan.

U.S. investors need to keep in mind the exchange rate between the U.S. dollar and the Japanese yen when purchasing Nintendo ADRs. At an exchange rate of 100 yen for every U.S. dollar, for example, NTDOF trades at roughly $200 if one share of Nintendo is trading for 20,000 yen in Japan. As NTDOY is one-eighth of an ordinary share, it trades at roughly one-eighth of NTDOF. If NTDOF is trading at $200, then NTDOY trades at roughly $25.

NTDOY vs. NTDOF

U.S. investors must consider the volume of shares traded in both of these ADRs when choosing between NTDOY and NTDOF to make an investment in Nintendo stock. Volume represents the number of shares traded in stock or ADR daily, monthly or yearly. Volume is important because it can be related to liquidity; the more that the Nintendo ADRs are traded, the higher the likelihood that the spread between the buy and ask bids for the ADRs is smaller.

NTDOY commands a higher volume of trading versus NTDOF, with hundreds of thousands of NTDOY ADRs trading hands daily, compared to thousands for the NTDOF ADR. With fewer shares trading hands, the movements in the price of the ADR may be greater. This could be detrimental to an investor when paying more for the shares and then selling them for less than he or she would have with a higher volume of trading. The spread for NTDOY ADRs is likely to be smaller, as more of the units trade daily.

The ability to add to or trim a stake once it is acquired is another consideration for U.S. investors when deciding to invest in either NTDOY or NTDOF for Nintendo stock. Because NTDOY represents only one-eighth of a share and is roughly one-eighth the value of NTDOF, investors can more easily add to or subtract from their Nintendo interests with respect to percentage. Investors are forced to buy or sell a whole share with NTDOF, while they can more easily add to or subtract from their Nintendo stakes through NTDOY on an incremental basis.