Electronic Arts (NASDAQ:EA) shares have done little since news of the initial success of its battle royale game, Apex Legends, back in February. At that point, it traded at around $97 per share. Today, the EA stock price sits at a little over $101 a pop.
The company continues to release new games, the success of which could send EA higher. Still, unless one knows this industry well beyond the financials, I see only difficulty in profiting from Electronic Arts stock.
EA Stock Back to Its Rangebound Ways
EA stock also has shown a long history of rangebound trading. It settled in a range between 2003 and 2008 and again from 2009 to 2012. Yes, EA has risen by nearly ten-fold from the lows of 2012. Still, the equity first reached the $100-per-share range more than two years ago. Since then, it has seen no net gain.
The financials offer little incentive to break the pattern. Analysts expect earnings 7.1% higher this year and 12.3% the next. Even with a forward price-earnings ratio of around 19.5, EA offers little reason to buy or sell based on metrics. It also makes the rangebound patterns of EA stock over the last four months understandable.
Only Gamers Should Play EA Stock
However, I don’t just have an issue with Electronic Arts stock. Its peers, such as Activision Blizzard (NASDAQ:ATVI) and Take-Two Interactive (NASDAQ:TTWO) also worry me. Yes, traders need to closely follow the metrics of EA stock. However, predicting its next move involves understanding both the games and the electronic-gaming industry at large.
A successful game could change the game (pardon the pun) for EA. The company may get another crack at Apex Legends-driven euphoria when it releases Apex Legends enters its Season 2 in early July. It could also receive a boost from new releases of Madden NFL or FIFA soccer franchises. My colleague Luke Lango predicts $110 per share for Electronic Arts stock if a game release succeeds.
His prediction could easily prove correct. The problem is that $110 takes the EA stock price to the top of the recently established range. What EA truly needs is the catalyst that will bring it above that level.
Longer term, Electronic Arts stock also needs an impetus that will take it past last year’s record high of $151.26 per share.
Traders Should Know More than Just Console Games
Knowing that means understanding the games. More importantly, the rise of device-based games from companies such as Zynga (NASDAQ:ZNGA) and Glu Mobile (NASDAQ:GLUU) brings more competition from PC or console-based games. Furthermore, companies such as Tencent (OTCMKTS:TCEHY) prove the industry faces additional threats from China.
I have not owned a gaming console for years. Plus, more than a decade has passed since I last played my old favorite, Madden NFL. Consequently, I no longer possess any intuitive understanding of games.
Also, the EA stock price trading in the middle of its range, it does not interest me. However, investors that know the games and can quickly assess whether a given release will resonate with consumers could see opportunity at these levels.
The Bottom Line on EA Stock
EA stock investors have to understand not only financials and stock patterns, but electronic gaming itself. Like many points in its history, EA has again established a pattern of rangebound trading. The equity now trades in the middle of its range. Hence, barring a range-breaking event, investors have as much to gain as they have to lose right now.
However, an understanding of such events changes the buy proposition. Investors with more intimate gaming-industry knowledge possess a better understanding of the releases that will resonate, both with them and consumers. As a result, knowing the games places a trader in a better position to know when EA stock could surge.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.