Video game stock Electronic Arts Inc. (EA) recently announced its collaboration with Ascendant Studios, an independent team of veteran developers with BAFTA and Game of the Year award-winning experience.

Jeff Gamon, General Manager of EA Partners, said, “EA Partners is proud and excited to collaborate with Ascendant in launching this epic, action-packed brand-new IP; a game players will never forget.”

Also, the company recently announced an agreement with Marvel Entertainment to develop new action-adventure games for consoles and PC. These collaborations should help bolster its position in the industry.

EA has lost 6.9% over the past month and 10.4% over the past year to close the last trading session at $119.54. However, it has gained marginally over the past three months. Moreover, Wall Street analysts expect the stock to hit $149.60 soon, indicating a potential upside of 25.2%.

Here is what could shape EA’s performance in the near term:

Solid Financials

EA’s net revenue came in at $1.90 billion for the fiscal 2023 second quarter that ended September 30, 2022, up 4.3% year-over-year. Its gross profit came in at $1.44 billion, up 8.3% year-over-year.

Moreover, its net income came in at $299 million, up marginally year-over-year, while its EPS came in at $1.07, up 4.9% year-over-year.

Favorable Analyst Expectations

Analysts expect EA’s revenue to increase 3.2% year-over-year to $7.75 billion in 2023 and 6.6% year-over-year to $8.26 billion in 2024. Its EPS is expected to increase marginally year-over-year to $7.15 in 2023 and 9.9% year-over-year to $7.86 in 2024.

Moreover, its EPS is expected to rise 10.7% per annum for the next five years. Also, it surpassed EPS estimates in three of four trailing quarters.

Robust Profitability

EA’s trailing-12-month gross profit margin of 75.25% is 49.6% higher than the industry average of 50.32%. Its trailing-12-month EBITDA and net income margins of 25.83% and 12.37% are 36.3% and 174.4% higher than the industry averages of 18.95% and 4.51%, respectively.

Furthermore, its trailing-12-month ROCE, ROTC, and ROTA of 11.51%, 8.77%, and 6.89% are compared with the industry averages of 6.14%, 4.11%, and 2.23%, respectively.

POWR Ratings Reflect Promising Outlook

EA has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

EA has a B grade for Growth and Quality, consistent with its solid financials in the latest reported quarter and higher-than-industry profitability margins, respectively.

In the 19-stock Entertainment - Toys & Video Games industry, EA is ranked #2. The industry is rated B.

Click here for the additional POWR Ratings for EA (Value, Momentum, Stability, and Sentiment).

View all the top stocks in the Entertainment – Toys & Video Games industry here.

Bottom Line

Analysts seem to be bullish on EA’s growth outlook. Furthermore, the global video game market is expected to grow at a CAGR of 5.9% until 2027. Given the stock’s robust fundamentals and industry tailwinds, I think EA might be an ideal buy now.

How Does Electronic Arts Inc. (EA) Stack up Against Its Peers?

While EA has an overall POWR Rating of A, one might consider looking at its industry peers, SciPlay Corporation (SCPL), which has an overall A (Strong Buy) rating, and DoubleDown Interactive Co., Ltd. (DDI), Playtika Holding Corp. (PLTK), and Gravity Co., Ltd. (GRVY), which have an overall B (Buy) rating.

EA shares were trading at $121.45 per share on Thursday morning, up $1.91 (+1.60%). Year-to-date, EA has declined -7.40%, versus a -18.07% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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