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Stocks  | March 7, 2019

Investorplace contributor Josh Enomoto recently highlighted the seven best video game stocks to power up your portfolio. Naturally, Electronic Arts (NASDAQ:EA) and EA stock were one of them.

Enomoto knows a thing or two about this subject, having worked for Sony (NYSE:SNE) for several years in the past. His take on tech stocks is worth reading.

So, before I get into the reasons why I think EA stock is worthy of your consideration, let’s see what Josh had to say about the maker of Battlefield V. amongst others.  

“Within the development and publishing sphere, very few names have achieved the far-reaching success of Electronic Arts (NASDAQ:EA),” my colleague wrote on February 12. “However, no one also knows how to shoot themselves in the foot like EA. After dominating most other video game stocks, EA came crashing down due to their own hubris.”

The hubris in question: releasing Battlefield V before it was ready for prime-time game playing. Nothing hurts a stock more than failing to live up to customer expectations. Down went EA stock on the news initial Battlefield V sales weren’t going to be near as robust as initially thought.

Through the beginning of February, Battlefield V sold 7.3 million copies in the two months since its launch, one million less than company expectations.  

The good news is that EA has additions and adjustments coming that will drastically improve the gaming experience, and that’s key to moving copies of the game. As Enomoto stated, it would be a mistake to think that EA won’t learn from its Battlefield V misstep.

I couldn’t agree more.

Why I Like EA Stock

I’ll be honest. I am not a gamer. Never have been. Never will be.

So, when I read an article in Barron’s about how amazing Apex Legends is, Electronic Arts’ new free-to-play video game, paint me skeptical. I care about revenues, cash flow, profits, and delivering a business model that’s got some staying power.

However, I do know from writing about Activision Blizzard (NASDAQ:ATVI) February 14, that Apex Legends is cutting into the sales of Activision’s top titles, so EA must be doing something right.

Furthermore, juxtaposed beside its awful launch of Battlefield V, Apex Legends’ stealthlike launch February 4 appears to be a brilliant move in a segment of the video game market (free to play) that’s getting more important to publishers with every passing day.

“With little warning and nearly no leaks, ‘Apex Legends’ was announced and launched on February 4 for Xbox One, PlayStation 4, and PC,” wrote Business Insider’s Ben Gilbert February 15. “It’s impossible to overstate how rare that is, especially from major game publishers like Electronic Arts. That the game also turned out to be a free-to-play shooter from the talented folks behind ‘Call of Duty’ and ‘Titanfall’ is even more of a surprise.”

Which leads me back to what Josh Enomoto said about EA learning from its mistakes. CEO Andrew Wilson and his team did.

The Bottom Line on EA Stock

As a result, I don’t see why EA’s revenues and earnings won’t keep going higher in the next few quarters. Only one analyst out of 24 has a “sell” or “underweight” rating, which is something to keep in mind.

With a valuation that’s not expensive relative to its peers, I don’t see why EA stock can’t move well into triple digits as we move into spring and summer.

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