Now Is the Time to Invest in EA Stock

Brad Moon

Electronic Arts (NASDAQ:EA) closed up 1.35% on Tuesday, but at $95.15, EA stock is off 4% over the past month. It has done well year-to-date (up about 20%), but over the past 12 months it’s down nearly 11%. And EA is nowhere close to last July when it was trading in the $148 range.

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There is a lot to look forward to in the coming months for Electronic Arts, with a new “Star Wars” title dropping just in time for the holiday season, and new game consoles coming in 2020 — but will that be enough to finally kick this gaming stock into high gear again?

What Clobbered EA Stock in 2018?

Electronic Arts stock had a terrible 2018 — or rather, a terrible second half of 2018. After hitting all-time highs in July, EA stock tanked, dropping 49% by mid-December. 

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Poor guidance after Q2 earnings in July started the slide, and investors began to show concern over the company’s strategy of releasing several big budget games each year instead of multiple smaller-scale offerings. The risk of this strategy was in full effect during the 2018 holiday season.

EA’s blockbuster release “Battlefield 5” was delayed by a month and stumbled on launch. It ending up selling 7.3 million copies in the quarter — 1 million fewer than EA had predicted. Poor holiday sales led to retailers discounting the price and Electronic Arts lowering its fiscal 2019 revenue projections.  


A Stalled Recovery

In the first half of 2019, it seemed as though EA stock was on the road to recovery, topping the $100 level multiple times. By July, however, not only was the momentum lost but EA went into a slump.

When the second season of “Apex Legends” failed to attract expected launch numbers at the start of July, EA stock took a 5% hit. A few weeks later, when it was reported that EA had lost the rights to Cristiano Ronaldo in its “FIFA 20” game to rival Konami, Electronic Arts stock took another 3% drop. At the end of of the month, EA released Q2 earnings that beat estimates leading to a big gain, but that rally was short-lived.

That has been the story for the past several months. A stalled recovery that sees EA stock make gains, get knocked back down, and never seems able to break through the $100 level.

Good Things on the Horizon for EA

Electronic Arts has some huge events on the horizon. In November, it will release “Star Wars Jedi: Fallen Order,” a game that should bring in big revenue over the holiday season. 2020 will see the launch of next generation video game consoles from Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT).

New consoles are a potential goldmine for video game companies, as buyers load up on new titles to try out their new hardware. Naturally EA is hard at work developing games for the Playstation 5 and Xbox Scarlett to take full advantage of that launch hysteria.

Is Now the Time to Buy Electronic Arts Stock?

Last year EA proved that even an industry-leading video game stock can be at risk. With titles that can easily surpass $100 million to develop, a company as big as Electronic Arts can stumble badly if sales don’t meet expectations.

The experts are divided on Electronic Arts’ prospects over the next year, but overall the mood is positive. Among the 34 analysts surveyed by The Wall Street Journal, 20 rate EA stock as a “buy,” and at $111.53, the average 12-month price target for the group implies decent upside. InvestorPlace’s Luke Lango makes the case that a long-awaited rally that could propel EA over $100 is likely to start before 2019 is over.

Given the “Star Wars” title in its holiday release hopper, plus the 2020 launch of the Playstation 5 and Xbox Scarlett, now seems like the time to add EA stock to your portfolio. 

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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