Top video game stocks delivered stellar returns to investors over the last decade, but Electronic Arts (EA -0.83%) and others ran into a speed bump last year. The reopening of the economy, rising inflation, and weak consumer spending trends caused Electronic Arts to report a 2% decline in net bookings (a non-GAAP measure of revenue) for fiscal 2023 ending in March.

Likewise, the stock went nowhere for two years, but that's also why it might be time to consider buying shares. EA reported strong results in its most recent quarter, and Wall Street is taking notice.

Analysts at Baird were particularly optimistic, citing strong performance from EA's top games and opportunities to carry that momentum into upcoming releases.

Overall, 82% of Wall Street analysts rate the stock a buy, and while these analysts usually are more focused on short-term performance, the stock is starting to look like a timely buy for long-term investors. Here's why.

A strong game lineup

EA posted accelerating bookings growth in the fiscal fourth quarter, increasing 15% year over year on a constant-currency basis, yet the stock's forward price-to-earnings (P/E) ratio is 11.5% lower than it was a year ago, currently sitting at a modest multiple of 18.7. That's on the conservative side for a leading video game company.

The stock should be worth more given that EA's growth comes from its existing franchises, which have established player bases that will likely buy the new version of the game every year. EA's latest installment in the FIFA franchise, which will be renamed to EA Sports FC in the next release this fall, is the biggest-selling release in the history of the annual series. Management also credited strong performance in Apex Legends, a popular free-to-play shooter, as well as The Sims 4, which now has a player network of more than 70 million worldwide. 

The strong performance from FIFA 23 should tee up a strong launch for the next release later this year. Another title that seems well positioned to deliver strong sales in the near term is the recent release of Star Wars Jedi: Survivor, which received very favorable reviews since its April release. 

But EA has more coming. While it hasn't officially been given a release date, EA has been reportedly working on a sequel to its Dragon Age franchise since 2015. The original Dragon Age game was released in 2009 and received great reviews from critics and fans alike, so a next-generation sequel with enhanced graphics and gameplay could be a huge success.  

EA is also working on its first college football title in several years. The game is anticipated to release in 2024, and given the popularity of Madden in recent years, there could be tremendous pent-up demand. This will be the first college football game that will include likenesses from real college athletes, as part of the NCAA's name, image, and likeness (NIL) policy that went into effect in 2021. 

EA Chart

EA data by YCharts

The value in the stock compensates investors for the risks

EA's early guidance for fiscal 2024 calls for bookings to be in the range of $7.3 billion to $7.7 billion. Analysts expect EA to post top-line growth of 3.4% in fiscal 2024 before accelerating to over 7% in fiscal 2025. 

By fiscal 2026, the consensus estimate has EA growing bookings to $9.3 billion on top of adjusted earnings per share of $9.76. Those forward earnings estimates would bring EA's P/E down to just 13, which is a bargain. 

Given the strong pipeline of current and upcoming games, EA may beat analysts' growth estimates. It has already beaten revenue estimates consistently over the last several quarters.  

What could go wrong? There are always uncertainties that a new release doesn't live up to expectations, but this is rare for EA's core sports franchises, including FIFA and Madden, and the upcoming college football title. It helps that EA's business is not dependent on a single release for growth. EA is one of the most diversified game publishers, with a wide portfolio of games across console, mobile, and PC platforms. It also offers its EA Play game subscription service through Microsoft's Xbox Game Pass, which had a reported 29 million subscribers in 2022.

The company appears to be executing well, and the stock is trading at a discount to the market average P/E. Another strong quarter could kick-start a new bull run for this video game stock.