I can understand my Foolish colleague Ryan's concerns about Electronic Arts
Since we're heading into the top of the game industry's cycle, though, there should be splendid times ahead for Electronic Arts. As I mentioned in my Bullish opener, there are many signs that the gaming market is expanding, with more people gaming on more devices. Even the latest Apple
The cyclical aspect can get troubling for investors, though; the downturns can admittedly feel miserable, as even long-term investors are gripped by pessimism. But as the market for games expands in the next few years, I have to wonder whether the larger audience might help mitigate the ups and downs of the console cycle. More and more people, playing games in an increasing variety of ways, could represent great opportunity for a company like EA.
As investors, our main concern is future growth, and given the current console situation, the next few years could be amazing for Electronic Arts. For the year ending March 31, 2008, Electronic Arts expects to report a 20% increase in sales and a 131% increase in earnings per share.
EA's hefty cash hoard is nothing to complain about, either. The company has $2.4 billion in cash -- nearly $8 per share -- and no debt.
It is too bad that Electronic Arts stock isn't still in the doldrums, as it was in several months ago, because that was bargain territory. As Ryan points out, its shares have indeed appreciated 30% recently. However, I believe that this premium pricing reflects only part of its great potential as industry leader; a higher valuation might be more worrisome for rivals like Take-Two Interactive
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