Why EA Looks Like Good Value Stock



There are several ways to evaluate a stock. One way is to start by looking at the enterprise value (EV) of the business, or the total value of the business after taking into account the balance sheet. EV is then often compared to its earnings before interest, taxes, depreciation and amortization (EBITDA). Comparing these two numbers gives you the EV / EBITDA ratio, and the lower the number, the cheaper the inventory.

Video game company Electronic arts (NASDAQ: EA) trades at a low EV / EBITDA ratio. However, in this clip from Motley Fool Behind-the-Scenes Pass, recorded September 27, Fool contributor Jose Najarro shares that not only is EA’s valuation cheap, but the company is also poised for robust growth over the coming year – and that’s a rare combination .

https://www.youtube.com/watch?v=O3Q2tI59t No

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José Najarro: Right now I want to take a quick look at their finances. They released their first quarter of fiscal 2022 results on August 4, 2021. Wow, it’s September 27 already, so it’s almost two months ago. But first we can see their net bookings.

Net bookings, I want to say, for a game company, is a better metric to consider than revenue. Net bookings are roughly the amount of money they make this quarter in the form of money from game bookings, digital products. Maybe we can tell another insider the difference between the two. But for the game company, I personally like to look at net bookings.

We can see that for fiscal year 2021, they earned around $ 6.2 billion. For fiscal year 2022, which has just started, they expect around $ 7.4 billion. They see huge growth in it even though the lockdown is easing in some states, in some countries, in some parts of the world. We can also see full games for 2021, which was only about $ 1.6 billion of that $ 6.2 billion in net bookings. Most of the net bookings actually come from what they call live services and the like. That’s pretty much their DLC, their downloadable content. It is their skins that they sell as products. For example, FIFA is one of the big money generators for them. I think if you want to get certain players, if you want to get certain boxes, certain uniforms, certain tournaments, you can also buy them for certain teams. This is where they make the most money.

Another thing is, if we take a look at the quarter, they showed us that for fiscal 2022, they are expected to grow. But then when they released their results for the first quarter of fiscal 2022, there was a slight drop from the same period last year. I think this is something that might worry some investors: “Hey, you say the gaming market has nothing to worry about, but you’re seeing a slight drop from the same time last year. But then they tried to reassure investors by saying, “Hey, even though this quarter was a little weaker than the same time last year, we expect this full year to destroy the year.” last. I guess both sides of the investor can definitely see both sides of this. There is certainly the good, there is certainly the bad. If we look at the last 12 months, however, we see further growth from the last 12 months of the same period last year.

I think the last things I want to look at is that while this company has made a lot of acquisitions, it still has around $ 2.8 billion in cash and cash equivalents. If we look at their debt, they have about $ 1.8 billion in non-current debt. This company has a strong track record. Another thing I wanted to look at is you can see the last 12 months of revenue going up, and it’s super positive in terms of operating cash flow for margins, there has been a slight dip. But overall, basically I think EA Games is at solid levels.

The last thing is going to be to look at that company’s EV / EBITDA futures ratio. Right now, if you look, it’s somewhere around 13.39, and we can see that these are levels that were first seen in the summer of 2020. Over a year s ‘s gone, this company has made new acquisitions, many new game studios, they are releasing new games, they still see growth from 2020. For me, I can definitely see the bullish thesis of the games market in something like EA.

Jon Quast has no position in the stocks mentioned. Jose Najarro has no position in the mentioned stocks. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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