Can This Gaming Stock Make a Comeback in 2022?

EA is down 10% in the past year

Feb 17, 2022 at 10:53 AM
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On Tuesday, Feb. 15, Electronic Arts Inc. (NASDAQ:EA) and its wholly-owned subsidiary, BioWare, launched Legacy of the Sith which is the latest expansion for Star Wars: The Old Republic, as part of its 10th Anniversary Celebration. This newest expansion is just one of the major content expansions available in the game, with updates rolling out continuously through 2022.

On top of this release, EA has earnings coming up, on Thursday, March 10 to be exact. The company is expected to announce earnings of $1.45 per share for its latest quarter, which is much lower than the profits of $3.20 per share EA posted during its last report. 

Sentiment on Wall Street has been mixed on EA. Analysts have taken a bullish stance. Of the 20 in coverage, 15 say "buy: or better, while the 12-month consensus price target of $164.70 is a 25.7% premium to current levels. 

Meanwhile, options traders have been much more bearish. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security sport s a 50-day put/call volume ratio of 1.05, which stands higher than 93% of readings from the past 12 months. In other words, there's been a heavier-than-usual appetite for long puts of late. 

The stock has carved out some choppy trading on the charts this past year, and has a 10.2% year-over-year deficit to show for some of its volatility. The stock is testing support at its 60-day moving average today -- a trendline EA has danced around since the end of last year. Meanwhile, Electronic Arts offers a forward dividend of $0.68 with a dividend yield of 0.51%.

The digital entertainment name also has a modest valuation, trading at a forward price-earning ratio of 17.83. In addition, EA holds a decent balance sheet with $3.02 billion in cash and $2.24 billion in total debt. However, the company has produced irregular top- and bottom-line growth in recent years. Most notably, EA's annual net income has decreased 79% since fiscal 2020, when profits boomed due to shelter-in-place guidelines.

ea feb 17

Overall, EA’s revenues have grown 31% and its net income has dropped 37% over the past four years. Furthermore, the digital entertainment company is expected to see an 8.8% increase in earnings and a 7.1% increase in revenues for fiscal 2023. This could potentially be setting up Electronic Arts stock as a recovery play for the coming year.

 

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