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Electronic Arts’ Valuation Compared to Its Peers

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Apr. 24 2019, Published 1:14 p.m. ET

Forward PE ratio

Electronic Arts (EA) has a forward PE ratio of 28.2x for 2019. The ratio might seem high given the company’s negative revenue and earnings growth this year. The company’s forward PE ratio for 2020 is 27.6x. If you compare the ratio to the estimated revenue and earnings growth of 7% and 13%, respectively, the stock is still trading at a premium.

Electronic Arts’ PE ratio was 21.9x in 2015, while it was 18.9x in 2016, 29.1x in 2017, and 36.3x in 2018. The EPS growth was 12% in the last five years.

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Electronic Arts will need to grow its bottom line and continue to beat analysts’ estimates to keep investors interested. Activision Blizzard (ATVI) and Take-Two Interactive (TTWO) are trading at forward 2019 PE ratios of 35.2x and 28.3x, respectively.

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Price-to-book ratio

Electronic Arts has the highest price-to-book ratio among its peers at 5.43x. Activision Blizzard, Take-Two Interactive, and Zynga (ZNGA) have price-to-book ratios of 2.88x, 5.34x, and 3.07x, respectively.

Profit margins

Electronic Arts’ operating margin is at the higher end among its peers at 29.2%. Activision Blizzard leads the group with an operating margin of 33.2%, while Take-Two Interactive and Zynga are at 22.5% and 15.7% respectively. Electronic Arts leads with a net margin of 20.7% compared to 17% for Activision Blizzard and 12.6% for Take-Two Interactive.

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ROA and ROE

Electronic Arts’ ROA (return on assets) is higher among its peers at 16.9%, while its ROE (return on equity) is 22.6%. Activision Blizzard, Take-Two Interactive, and Zynga have ROAs of 8.5%, 12.4%, and 6.9%, respectively.

Capex and cash flow-to-sales ratio

While gaming companies will have a minimal investment in capital expenditure, Electronic Arts’ capex-to-sales ratio is the highest at 2.4%. Activision Blizzard, Take-Two Interactive, and Zynga have capex-to-sales ratios at 2.1%, 1.9%, and 1.2%, respectively.

Electronic Arts’ cash flow-to-sales ratio is 28.4%. Activision Blizzard, Take-Two Interactive, and Zynga have ratios of 31.3%, 20.3%, and 15.2%, respectively.

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