Electronic Arts stock (NASDAQ: EA) is down 6% in a month, underperforming the broader markets, with the S&P 500 index up 9%. This can be attributed to the company’s recently announced downbeat Q3 results. The company reported total bookings of $2.3 billion, down 9% y-o-y, slightly below the $2.5 billion consensus estimate. Although the company saw continued growth in its live services offerings, Mobile segment revenue was lower than anticipated. In fact, the company has decided to shut down mobile versions of its two popular games – Apex Legends and Battlefield. The bottom line came in at $2.80 (adjusted) vs. $3.02 in the prior-year quarter and well below the $3.04 consensus estimate.
Furthermore, Electronic Arts has cut its full-fiscal 2023 guidance. It now expects sales to be between $7.25 and $7.35 billion, compared to its prior estimate of $7.55 to $7.75 billion. Similarly, it cut its earnings forecast to now be in the range of $5.84 to $6.10, vs. its prior range of $6.95 to $7.25. This is partly attributed to the company’s decision to push the release of Star Wars Jedi: Survivor to the end of April. The downbeat results and guidance didn’t sit well with the investors, evident from a 10% drop in share price in the last five days.
We have updated our model for EA to reflect the latest results. We estimate Electronic Arts’ Valuation to be around $138 per share, which is 19% above its current market price of $116. At its current levels, EA stock is trading at 19x forward adjusted earnings of $6.10 at the higher end of the company’s provided range, compared to the last three-year average of 22x, implying there is room for growth.
But what about the near term?
Now that EA stock has seen a 6% fall in a month, will it continue its downward trajectory, or is a rise imminent? Going by historical performance, there is a higher chance of an increase in EA stock over the next month. A move of -6% in a month has occurred 419 times in the past ten years. Of those 419 instances, 275 resulted in EA stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 275 out of 419, or about a 66% chance of a rise in EA stock over the next month. See our analysis of Electronic Arts Stock Chance of Rise for more details.
Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using the last ten years’ data
- After moving -10.2% or more over five days, the stock rose on 56% of the occasions in the next five days.
- After moving -6.2% or more over ten days, the stock rose on 61% of the occasions in the next ten days.
- After moving -5.5% or more over a twenty-one-day period, the stock rose on 66% of the occasions in the next twenty-one days.
This pattern suggests a higher chance of a rise in EA stock over the next five, ten, and twenty-one days.
Electronic Arts (EA) Return (Recent) Comparison With Peers
- Five-Day Return: MSFT highest at 6.7%; EA lowest at -10.2%
- Ten-Day Return: MSFT highest at 14.1%; EA lowest at -6.2%
- Twenty-One Day Return: TTWO highest at 11.3%; EA lowest at -5.5%
While EA stock looks like it can see higher levels, it is helpful to see how Electronic Arts’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Vicor vs. Williams Sonoma.
With higher inflation and the Fed raising interest rates, among other factors, EA stock has fallen 16% in the last twelve months. Can it drop more? See how low Electronic Arts stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.