Assessing EA Shares After 37.6% Jump and Game Studio Acquisition in Early 2025

Thinking about what to do with Electronic Arts stock? You are not alone. With video game leaders in the spotlight and the digital entertainment landscape always changing, even the most seasoned investor can find it hard to keep up. Electronic Arts has taken investors on quite a ride recently, closing at $200.69 after a 19.0% jump over the past month. Year-to-date, returns are up a substantial 37.6%, and if you look back even further, Electronic Arts has delivered a 41.1% gain in the last year and is up an impressive 69.1% over three years. If you compare that to the five-year mark, shares are still sitting 57.6% higher than in mid-2019. Not every day has been sunny, though, with a slight dip of 0.7% in the last week, it is worth asking what is driving the latest moves.

Industry watchers point to several factors fueling the stock’s momentum: increased demand for interactive entertainment as new platforms reach wider audiences, and ongoing buzz around game launches and gaming acquisitions by big tech firms, which continues to keep sentiment flashing “growth.” All this action has many wondering about Electronic Arts' current value and whether now is the right time to buy, sell, or simply hold.

But here is where it gets interesting. When we look at the company using six classic ways to check for undervaluation, Electronic Arts scores a 0, signaling it does not seem to be undervalued by traditional measures. Of course, there is more to valuation than just textbook metrics. Next, we will break down those standard valuation approaches, and at the end, we will reveal a smarter perspective to help you make sense of where Electronic Arts really stands in the market.

Electronic Arts scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Electronic Arts Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates what a company is worth today by projecting its future cash flows and discounting them back to the present value. For Electronic Arts, this analysis relies on a 2 Stage Free Cash Flow to Equity approach, which combines analyst estimates for the next five years and extends projections further to 2035.

Currently, Electronic Arts generates Free Cash Flow (FCF) of $1.76 billion. Based on a blend of analyst and model forecasts, FCF is expected to grow steadily, reaching $2.61 billion by 2030. The DCF model uses these numbers, expressed in billions since all values are above $1 billion, to build out a decade-long projection. This takes into account both realistic short-term estimates and more speculative long-term forecasts.

After discounting these projected cash flows back to their present value, the model assigns an intrinsic value of $154.73 per share to Electronic Arts. When compared to the current share price of $200.69, this suggests Electronic Arts stock is about 29.7% overvalued based on its long-term cash-generating potential.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Electronic Arts.

Our Discounted Cash Flow (DCF) analysis suggests Electronic Arts may be overvalued by 29.7%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Electronic Arts Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is a widely used valuation tool for profitable companies like Electronic Arts, as it relates the market value of a company to its actual earnings. Since EA has a strong and steady profit base, using the PE ratio gives investors a straightforward way to gauge if the stock is reasonably priced.

Naturally, investors tend to pay a higher PE ratio for companies with superior growth prospects or less risk, and a lower one for slower growth or higher risk. Electronic Arts currently trades at a PE of 48x, which stands out compared to the broader Entertainment industry average of 31x and its peers’ average of 45x.

Simply Wall St's proprietary Fair Ratio model goes a step further by calculating the multiple that best fits Electronic Arts. It takes into account factors like its earnings growth, profit margins, exposure to risks, its industry, and even market cap. This approach offers a clearer view than simply relying on industry or peer comparisons, as those may not account for EA’s unique strengths or challenges.

For Electronic Arts, the Fair Ratio estimate is 26.6x. Since this is substantially lower than the actual PE ratio of 48x, it suggests the stock is trading at a premium and may be overvalued based on this measure.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Electronic Arts Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let’s introduce you to Narratives. A Narrative is simply your own story or investment perspective about Electronic Arts—why you think the company is interesting, where its earnings and revenues are headed, and what that means for its fair value. Narratives connect your unique view of a company’s future to specific financial forecasts, which helps you calculate what you believe the share price should be today.

Millions of investors use Narratives on Simply Wall St’s Community page to go beyond static ratios and models. With just a few steps, you can lay out your assumptions on revenue growth, margins, and valuation multiples, tying your insights to an actionable fair value. Most importantly, Narratives are dynamic. They update automatically as new news or earnings are announced, so your view always reflects the latest information.

Narratives empower investors by letting you decide when EA is a buy or sell, based on the gap between fair value and current price, not just the market consensus. As an example, one Narrative might see Electronic Arts being worth as much as $210 per share based on blockbuster game releases and strategic buyouts. Another investor may hold a much more cautious view, placing its fair value closer to $148 due to risks from underperforming franchises and market uncertainty.

Do you think there's more to the story for Electronic Arts? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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