EA Stock Investors Lost 15% in the Last 3 Years; Is it a Buy Now?

• EA stock fell 12.73% in a month and 8.06% in a year but gained 8.57% in six months. 
• Electronic Arts ROE should rise by 27% in the coming years. 

Electronic Arts Inc. (NASDAQ: EA) investors lost nearly 15% in the last three years and the previous earnings saw EA stock fall by nearly 11.55%. The average share price drop in the last three years has been around 15%, while the market return is about 30%. In comparison, the last 30 days dropped approximately 12%. 

Electronic Arts Inc. (EA) Stock – Financial Analysis

During the last three years, Electronic Arts reported an earnings per share (EPS) drop of 22% each year. It seems even worse considering the 5% compound annual share price drop. In 2023, the EA shareholders are down by 9.6%, including dividends, while the market hovers by 2.8%. 

Considering Electronic Art’s return on equity (ROE), for every $1 worth of equity, the game maker earns a profit of $0.12. Analysis suggests the payout ratio might drop to 10% in the next three years. In comparison, the company’s future ROE should rise by 27%. 

The fall in EA share price during the earnings can be attributed to a lackluster performance in the Season 17 of Apex Legends. Even though the game had nearly 18 Million active monthly players, the game could have brought in the desired revenue. Also, for the next five years, the decline in net income is expected to be 16%. 

Electronic Arts Inc. (NASDAQ: EA) – Technical Analysis

EA stock, at press time, is trading at $120.68, falling 0.61%; previous close and open were at $121.42 and $120.89, respectively. The 52-week range is from $108.53 to $140.30, indicating a considerable gap from the current high. With an average volume of 2.30 Million shares, the market cap is $32.839 Billion. 

The trailing twelve-month (TTM) price-to-earnings ratio is 42.05, indicating an overvalued stock price. At the same time, the (TTM) EPS is $2.87, showcasing strength. Analysts placed a 2.52 rating for moderate buy and estimated a price target at $139.34 with a 15.7% upside. 

Electronic Arts released its last earnings on August 1, 2023, where the reported revenue of $1.578 Billion failed to surpass the expected value of $1.584 Billion by 0.39%. In comparison, the reported earnings of $0.842 per share failed to beat the estimated $1.023 per share by 17.70%. This negative report caused the EA stock to tumble 11.55% during the announcement. 

The subsequent earnings would be reported on November 1, 2023, where the revenue should be $1.784 Billion, and earnings shall be around $1.303 per share. The TTM revenue is $7.58 Billion, and the year-over-year (YoY) quarterly revenue growth is 8.40%. 

Electronic Arts Inc. (EA Stock) – Candle Exploration

The sharp drop after the August 1st earnings came with a solid red candle, making price action bearish for the short term. If the fall continues, the price could test immediate support at $117.36 before going to the buying zone and bouncing off at $113.01. If the negative momentum continues, the price action could even form new lows. 

A sharp descent in the 50EMA hints at a price drop but the RSI touching the oversold range at 29.05 suggest a small jump. A substantial price reversal is possible if a robust green candle is formed and its size is more significant than a few previous candles combined. 

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