Today we're going to take a closer look at large-cap Technology company Electronic Arts, whose shares are currently trading at $119.52. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
Electronic Arts Inc. develops, markets, publishes, and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, Electronic Arts has a trailing 12 month P/E ratio of 36.9 and a P/B ratio of 4.43.
Electronic Arts's PEG ratio is 3.09, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
A Pattern of Improving Cash Flows With a Flat Trend:
| 2017-05-24 | 2018-05-23 | 2019-05-24 | 2020-05-20 | 2021-05-26 | 2022-05-25 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $4,845 | $5,150 | $4,950 | $5,537 | $5,629 | $6,991 |
| Gross Margins | 73.0% | 75.0% | 73.0% | 75.0% | 73.0% | 73.0% |
| Operating Margins | 25% | 28% | 20% | 26% | 19% | 16% |
| Net Margins | 20.0% | 20.0% | 21.0% | 55.0% | 15.0% | 11.0% |
| Net Income (MM) | $967 | $1,043 | $1,019 | $3,039 | $837 | $789 |
| Earnings Per Share | $2.93 | $3.32 | $3.33 | $10.3 | $2.87 | $2.76 |
| EPS Growth | n/a | 13.31% | 0.3% | 209.31% | -72.14% | -3.83% |
| Diluted Shares (MM) | 330 | 314 | 306 | 295 | 292 | 286 |
| Free Cash Flow (MM) | $1,701 | $1,799 | $1,666 | $1,937 | $2,058 | $2,087 |
| Capital Expenditures (MM) | -$123 | -$107 | -$119 | -$140 | -$124 | -$188 |
| Net Current Assets (MM) | $1,541 | $2,015 | $2,755 | $2,866 | $1,765 | -$2,024 |
| Long Term Debt (MM) | $990 | $992 | $994 | $397 | $1,876 | $1,878 |
Electronic Arts has a pattern of improving cash flows and healthy debt levels. Additionally, the company's financial statements display average operating margins with a negative growth trend and positive EPS growth. However, the firm has slimmer gross margins than its peers. Finally, we note that Electronic Arts has weak revenue growth and a flat capital expenditure trend and just enough current assets to cover current liabilities.
