Stock Pick: Electronic Arts Incorporated (EA)

Electronic Arts Incorporated (EA) is one of the most reputable video game publisher in the world. The company is headquartered in Redwood City, California. It creates, markets, and distributes digital-interactive games and content on PC, mobile and console. EA has over 300 million registered users around the world. As of June 2018, the company has a workforce of 8,800 employees with sales of $5.1 billion in fiscal 2018.

Technical Analysis of Electronic Arts Inc. (EA)

EA has been pulling back after printing an all-time high of $151.26 in July 2018. At that price, the stock showed signs of bullish exhaustion. First, EA created large bearish divergences on the monthly and weekly charts. On top of that, the monthly candle had a long wick above its body indicating the presence of sellers. These signs warned of a serious correction. That’s exactly what happened.

Technical analysis shows that EA is en route to crucial support of $73.74. From July 2015 to April 2016, the stock consolidated below this price point as it struggled to breach this resistance. EA finally broke through in April 2016. Six months later, in November 2016, the stock created a hammer candle on the weekly chart as it rejected prices below $73.74. This failed swing low mustered the bullish momentum that sent EA to its all-time high.

Now, we have a high demand area that EA can rely on to ignite a much-needed relief rally.  

Fundamental Analysis of Electronic Arts Inc. (EA)

In addition to our technical analysis, fundamental analysis also support our short-term bullish view.

Electronic Arts Inc. reported its second fiscal quarter numbers recently that topped expert estimates. The Earnings per share (EPS) estimate was $0.58 but the company posted quarterly earnings of $0.86 per share. On top of that, experts estimated sales of 1.18 billion but the company posted sales of $1.22 billion.

Also, its trailing twelve months price-to-earnings ratio (PE ratio TTM) is 17.98. The stock is undervalued considering that the PE ratio TTM of the toys, games and hobbies industry is 19.74. If you also take into account that EA has a four-year PE ratio TTM maximum of 34.564, then you can say that the stock likely has some room to grow.

The strategy is to buy on dips as close to $73.74 as possible. As long as the stock is above this level, it will likely generate the momentum to bounce to our target of $86.51. Breach that level and there’s a possibility of climbing as high as $99.60.

The timeline for the target is less than six months.

Weekly EA Chart

Monthly EA Chart

As of this writing, the Electronic Arts stock (EA) is trading at $78.08.

Summary of Strategy

Buy: On dips as close to $73.74 support as possible.

Target:  $86.51 and then $99.6.

Stop: Close below $71.50.

 

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.