Well, OK. I stand corrected. Electronic Arts (NASDAQ:ERTS) is more than a one-hit wonder. But mine isn't the only gaffe in this debate. Quoting Rick's bull argument:
Paying nearly 30 times next year's profitability may seem expensive, but EA is worth it. It's growing its earnings at an increasingly fast pace these days. (Emphasis mine.)
Um, no:
|
Normalized Net Income |
TTM |
FY 2007 |
FY 2006 |
FY 2005 |
FY 2004 |
|---|---|---|---|---|---|
|
Year-over-year growth |
(77.1%) |
(63.1%) |
(42.8%) |
(8.2%) |
45.8% |
And the top line isn't much better:
|
Revenue |
TTM |
FY 2007 |
FY 2006 |
FY 2005 |
FY 2004 |
|---|---|---|---|---|---|
|
Year-over-year growth |
2.5% |
4.7% |
(5.7%) |
5.8% |
19.1% |
As members of the Rule Breakers research team, Rick and I are used to paying 30 times earnings (or more) for fast movers. Massive growth is quite often worth it. With EA, all you have is the promise of massive growth -- a promise it has yet to keep.
Spitting into a tailwind may be a bad idea, but so is spitting on your portfolio. Save your sore thumbs for a stock that's cheap enough to deserve your dollars.
Check out the other arguments in this Duel, and then vote for a winner.
