Electronic Arts Inc. (EA) Stock Needs an Earnings Beat to Keep Running

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Electronic Arts Inc. (NASDAQ:EA) has spent the last week consolidating near an all-time high and looks to be setting up for a big move. The catalyst for that move in EA stock will come from the company’s earnings report on Tuesday afternoon.

Electronic Arts EA stock

The question now is whether it will result in a breakout to new highs or a pullback to retest support.

For the fiscal fourth quarter, analysts are looking for 50% earnings growth to 75 cents per share and an 18% revenue increase to $1.09 billion.

The sales numbers for Mass Effect: Andromeda, the fourth game in the Mass Effect installment, will play a major role in the report. The bar is set high, but reviews for the game have only been subpar, so a weak number could be a concern for investors and lead to some profit-taking.

EA Stock Chart

I like that Electronic Arts has been able to beat on earnings in the last few quarters, though it’s worth noting that the initial reaction has been mixed. EA stock gapped lower after reporting second-quarter results in November (circled in black on the chart below) and lagged the market for a few weeks before putting in a bottom in December. Then in February, the stock gapped higher following third-quarter numbers (circled in green) and hasn’t looked back since.

EA stock chart

There’s no question Electronic Arts has been a leader in 2017, gaining more than 20% year-to-date and easily beating both the overall market and its peers. A fresh breakout would put the stock in uncharted waters and could have the potential to run for a few weeks.

On the other hand, a breakdown would likely send EA stock back to long-term support at the 50-day moving average (the blue line) currently at $90.10.

With no distinct historical pattern for what to expect after earnings and shares currently trading near all-time highs, I’d put the odds of a big rally next week at less than 50%. If Electronic Arts is unable to surprise on the upside with earnings, revenue and guidance, it could be difficult for EA stock to keep rallying without at least an initial pullback.

Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt is currently in the midst of an exciting launch centered around his trademark three-prong investing approach that targets the mega-trends old Wall Street is missing out on. His next-gen investing strategy is delivering enormous profits in stocks and ETFs. Click here for more information on his latest venture.


Article printed from InvestorPlace Media, https://investorplace.com/moneywire/2017/05/electronic-arts-inc-ea-stock-needs-an-earnings-beat-to-keep-running/.

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