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Electronic Arts Inc. (ERTS) Message Board

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  • jesterbunk jesterbunk May 12, 2007 1:35 PM Flag

    Recap of Reasons to like EA for new board readers, ENJOY:

    It seems to me some perma-bulls like to value ERTS based on high earnings and high growth. The problem is, it's the nature of the cycle that ERTS tends to have one or the other, not both at the same time. For example, last year was negative growth.

    They're probably not going to have a current EPS of $1.50 or greater with a growth rate of 50% or greater, at the same time. If/when their EPS goes over $2 the growth rate will probably be low double digits by then. Therefore the forward P/E is unlikely to stay as high as 50 through the peak of the cycle. Is ERTS really worth more than GOOG or AAPL? And their businesses aren't as cyclic as ERTS is.

    I think one of the analysts recently was trying to justify the high price by saying, "Look at peak earnings a few years from now and look at current growth, therefore it's CHEEAAAAAPPP!", conveniently forgetting that at the point they have peak earnings the growth rate could be flat or negative at that time. You know things are expensive when analysts are finding creative ways to explain valuations.

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