Trading at $50.00 as of Feb. 10, 2003

Escapism is big these days. From taking on a new identity in The Sims to heaving the pigskin like Rich Gannon with John Madden rooting you on, Electronic Arts(Nasdaq: ERTS) has you covered.

With shares of the leading video game maker now trading near a 52-week low, one might imagine the company is getting slippery with the controller buttons and missing the mark. Far from it. It just blew past December-quarter estimates, and is now set to earn between $2.37 and $2.45 a share in its fiscal year, which ends next month on revenue just shy of $2.5 billion. That means despite living in an economic lull where disposable income is harder to come by, it will still grow the top line by 45% on significantly wider profit margins. It only gets better from here, with Wall Street looking for a profit of $2.89 a share in the new fiscal year.

I can't recall the last time Electronic Arts fetched a forward earnings multiple in the teens. I also can't recall a time in which the software publisher was so fundamentally strong.

Forget the fact that Electronic Arts had six of the 20 best-selling games last year. The company literally owns the industry. A nod of the head can send a console maker tumbling into oblivion because Electronic Arts makes the games everyone wants. While smaller video game companies warned of a soft holiday selling season because retailers weren't stocking enough of their titles, Electronic Arts scoffed at the notion. It knew then what Wall Street knows now: Its wares filled the lost shelf space. While other companies are often one hit shy of being one-hit wonders, this company has produced 33 different product lines that have topped the million-unit sales mark.

Its sports titles have become a "can't-miss" franchise because everyone wants to upgrade their games annually to have the latest season's roster of players. The company can milk a hit like The Sims into a series of expansion packs and an online version with a monthly paying subscriber base.

Yes, Electronic Arts has invested more in online gaming than its thriftier peers, and it has earned record profits despite losses from Can you imagine what the bottom line will look like when the company begins to cash in on the Internet's promise of high-speed game play and dirt-cheap software distribution? 

The company is also cash rich, with $1.2 billion in the bank, and with plans to raise another $2 billion for acquisitions. Last month, I wrote about the tempting valuations of Electronic Arts' smaller rivals. Any of these buyouts would be accretive to earnings, and it's intriguing that the one thing holding these fledgling software houses back is the lack of Electronic Arts' marketing muscle. It has learned the game business so well, it can't lose

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Rick Aristotle Munarriz is in the game -- he just doesn't know it yet. He's a kid at heart, with a few different gaming consoles lying around the house, but he doesn't own shares of Electronic Arts. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.

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