With shares of Electronic Arts (NASDAQ:EA) trading around $21, is EA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Electronic Arts develops, markets, publishes, and distributes game software content and services that can be played by consumers on a variety of video game machines and electronic devices. Its offers video game products through gaming consoles such as the Sony Playstation 3, Microsoft Xbox 360 and Nintendo Wii. Electronic Arts’s products can also be used on personal computers, mobile devices, tablets, electronic readers, and social networking sites which include popular platforms such has PCs, Apple Mac, Apple iPhone, Google Android, Apple iPad, Amazon Kindle, and Facebook. Consumers are always looking for new forms of entertainment, through its product offerings, Electronic Arts is able to provide valuable experiences worldwide.
NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!T = Technicals on the Stock Chart are Strong
Electronic Arts stock has displayed a downtrend over the last several years. However, the stock has made a magnificent run since hitting multi-year lows just last year. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Electronic Arts is trading above its rising key averages which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Electronic Arts options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Electronic Arts Options | 39.53% | 10% | 9% |
What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.
Top Penny Companies To Buy For 2014Put IV Skew | Call IV Skew | |
| June Options | Flat | Average |
| July Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Decreasing Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Electronic Arts’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Electronic Arts look like and more importantly, how did the markets like these numbers?
| 2013 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | -7.89% | 75.81% | -17.48% | -4.55% |
| Revenue Growth (Y-O-Y) | -11.62% | -13.10% | -0.56% | -4.40% |
| Earnings Reaction | 17.11% | 4.31% | 9.15% | 5.98% |
Electronic Arts has seen decreasing earnings and revenue figures over most of the last four quarters. From these figures, the markets have been very excited about Electronic Arts’s recent earnings announcements.
NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!P = Excellent Relative Performance Versus Peers and Sector
How has Electronic Arts stock done relative to its peers, Activision Blizzard (NASDAQ:ATVI), Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), and sector?
| Electronic Arts | Activision Blizzard | | Apple | Sector | |
| Year-to-Date Return | 49.24% | 37.95% | 1.58% | -14.54% | 23.46% |
Electronic Arts has been a relative performance leader, year-to-date.
Conclusion
Electronic Arts provides entertaining game experiences that are highly valued by consumers worldwide. The stock has seen an amazing run over the last couple of years is and is still surging higher. Earnings and revenue figures have been decreasing over most of the last four quarters, however, investors have generally been pleased with Electronic Arts’s earnings announcements. Relative to its peers and sector, Electronic Arts has been a year-to-date performance leader. Look for Electronic Arts to OUTPERFORM.
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