Electronic Arts, Inc. (NASDAQ:EA)

CAPS Rating: 2 out of 5

The Company develops, markets, publishes and distributes interactive software games that are playable by consumers on video game consoles, personal computers, mobile platforms and online.


Player Avatar TheStankometer (< 20) Submitted: 1/25/2011 12:47:38 AM : Underperform Start Price: $16.07 EA Score: -129.52

It really does pain me to have to rip into the video game industry like this... but via the Smelloscope I've come upon yet another stinker in this market.

This time the smelt was dealt by Electronic Arts, who scored an unsavory 32 out of 100 points in the Smelloscope scoring system. And on 1-10-11 at a price of $16.01 it ranked within the bottom 10% of stocks I've sniffed.

Here's why:

-Mediocre earnings
-Negative ROE%, ROA%, and net profit margin
-Declining 5 year book value per share trend
-Negative price to free cash flow
-Over 5% short interest (as a percentage of float)
-Discouraging insider trading

The bottom line:

I'm a big fan of the games this company makes. They've produced some of my favorites of all time... but that doesn't change the fact that their fundamentals stink. And so does this whole industry. It's a wild place out there. Piracy is rampant. Employee turnover is high. Civil wars seem to regularly break out between idealistic studios trying to stay true to their art and CEOs who want nothing more than to show a profit in the books.

ERTS has released many successful games in the past, and I expect that they will be a mainstay in the industry for many years to come. But until the video game market grows up a little bit, I think I'll keep my money away from the likes of companies like these.

Sorry Electronic Arts... I love your games, but your fundamentals are really stinkin' up the place.

(official nose of the Stankometer)

Full Discloser:
I don't own a long or short position in ERTS but I do own one of their competitors: Activision (ATVI)
TheSmelloscope is a value rating system created to evaluate stocks for fun. It is operated by a novice investor named djshagggyd. NOVICE being the key word. Do not follow the Stankometer's advice without conducting your own research.

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