Momentum is always an important part of my analysis of a stock. And Electronic Arts Inc. (EA) has plenty of momentum right now. Don’t believe me? EA stock moved 24% … in May.
Most of that was its earnings numbers, which, as usual, beat analysts’ estimates handily. Revenue was expected to be $888 million for the quarter; it came in at $924 million. Earnings were supposed to be 42 cents per share; they came in at 50 cents a share.
According to ZergWatch, EA surprises on its earnings 116% in the last four quarters. I’m not sure that says more about the company than the analysts, but it’s still very bullish.
But this is already in the rearview mirror. The point is that the markets tend to look about 6 months out when determining the value of a stock. Whether that’s right is for a discussion at another time. For now, it’s most effective to simply not fight the tape and look to see if we can see more or less than the market over that time.
Strong Game Titles Give Electronic Arts Long-Term Oomph
In the case of EA, there’s is plenty more left in the tank. According to Statista, the top 3 gaming categories — shooter, adventure and sports — had a combined market share of 61% of sales in 2015.
Electronic Arts dominates in those categories.
What’s more, EA has a slew of new games coming out, including a new Star Wars game, Battlefront due out in November and a new original game, Battlefield 1, due out in October. Titanfall 2 is also due out this fall.
And it’s not just about titles. Electronic Arts is making sure to keep up with the way gamers are using the games. EA is moving briskly into the mobile gaming space and developing more multiple-player formats. For example, for Battlefield 1 it’s launching a 2-team online event that will have 32 players on each team.
This is what is exciting about EA stock in the future. There’s no doubt it’s one of the top gaming companies in the market today. It’s continuing a strong run on the earnings front, showing that management is doing a great job managing the opportunities and risks.
And its pipeline is brimming with new ideas and new technologies in proven sectors, as well as new growth in the newest markets. Remember, while the U.S. gaming market is well developed, in emerging markets gaming is just catching fire.
According to a report written by Newzoo, 45% of game revenues come from Asia, and “11 Asian countries will generate 55% of mobile gaming revenues”. Just the esports segment is expected to grow 50%, to 1.5 billion players in the next three years.
So, when you hear people complain about how expensive EA stock is at a price-to-earnings ratio of 22, you can just smile, and keep on buying.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
