Video Game Stock Could Heat Up Before Summer

Electronic Arts stock tends to outperform in the second quarter

Apr 1, 2019 at 1:34 PM
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The shares of video game maker Electronic Arts Inc. (NASDAQ:EA) ended the first quarter with a gain of nearly 29% -- their best quarter since the end of 2014. What's more, EA stock could extend its 2019 rally over the next few months, if recent history is any indicator.

Specifically, the maker of the "Apex Legends" and "Battlefield V" games has been among the best S&P 500 stocks to own in the second quarter of the year. EA has averaged a quarterly gain of 10.79%, and ended higher eight of the past 10 years, per recent data from Schaeffer's Senior Quantitative Analyst Rocky White.

Electronic Arts stock is up 1.4% at $103.09 today. The shares have rallied roughly 39% since their Dec. 26 low of $73.91, with recent pullbacks contained by their 40-day moving average, though upside momentum has stalled in the $105-$108 area. Meanwhile, the $103 area represents a 38.2% Fibonacci retracement of EA's decline from its July 2018 closing high to the aforementioned lows. Another 10.79% second-quarter surge from current levels would place EA around $114.21 -- territory not charted since October.

EA stock chart April 1

Despite the security's outperformance last quarter, a handful of analysts remain skeptical of EA. Currently, 32% of covering brokerage firms maintain tepid "hold" ratings, leaving the door open for potential upgrades to drive future gains. Likewise, the consensus 12-month price target of $102.37 represents a discount to current trading levels. Another strong second-quarter performance could also trigger price-target hikes.

Meanwhile, EA sports a Schaeffer's put/call open interest ratio (SOIR) of 0.62. While this ratio indicates that call open interest outnumbers put open interest among options expiring within three months, it registers in the 92nd percentile of its annual range. This mean that near-term options traders are more put-biased than usual right now. An exodus of short-term option bears could also be a boon for Electronic Arts.

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