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Electronic Arts Faces More Declines as Profits Drop By Michael J. Kramer | Updated November 14, 2018 — 11:40 AM EST SHARE (Note: The author of this fundamental analysis is a financial writer and portfolio manager.) Electronic Arts (EA)has fallen 41% from its highs this year and now technical analysis suggests the stock is poised to fall 12% further. Should the shares of the video game maker drop by that amount, it would be down 49% from its highs. The company provided weaker than expected fiscal third quarter 2019 guidance in the middle of October. Additionally, the guidance for the full year was lower than expected, prompting analysts to slash their revenue and earnings forecasts. EA data by YCharts Chart Showing Weakness The chart for Electronic Arts shows the stock has fallen below a critical level of technical support at $92.50, which positions the stock to fall to its next support at around $76.40. The stock also has fallen below a long-term uptrend at the begriming of October, another bearish indicator. Additionally, the relative strength index has been trending lower since peaking at overbought levels above 70 in June. Slashing Estimates The very size of analysts' downward revisions may be a concern for investors. They have slashed third quarter earnings estimates by 20% and revenue estimates by 12%. Analysts now see earnings and revenue declining from last year. Full-year earnings estimates for fiscal 2019 also have dropped and are forecast to rise 4%, down sharply from earlier forecasts of 15% growth. Additionally, revenue is now expected to be flat. Cutting Next Year Too The estimates for 2020 and 2021 also have fallen. EA EPS Estimates for Next Fiscal Year data by YCharts As a result of the stock's steep decline, its valuation has fallen dramatically to a 2020 PE ratio of 16.5. While that's at the lower end of its historical range since 2015, that's all Electronic Arts may be worth right now. The company faces dramatically weaker growth in the years ahead. Only a reversal of that outlook is likely to lift the valuation and shares, which now seems unlikely. Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

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