January 23, 2025
When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the Electronic Arts Inc. ( NASDAQ:EA ) share price is up 27% in the last five years, that's less than the market return. The last year hasn't been great either, with the stock up just 3.3%.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
Check out our latest analysis for Electronic Arts
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During five years of share price growth, Electronic Arts actually saw its EPS drop 15% per year.
The strong decline in earnings per share suggests the market isn't using EPS to judge the company. Given that EPS is down, but the share price is up, it seems clear the market is focussed on other aspects of the business, at the moment.
We doubt the modest 0.5% dividend yield is attracting many buyers to the stock. On the other hand, Electronic Arts' revenue is growing nicely, at a compound rate of 8.3% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Electronic Arts is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Electronic Arts will earn in the future (free analyst consensus estimates)
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Electronic Arts the TSR over the last 5 years was 30%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
Electronic Arts provided a TSR of 3.8% over the last twelve months. But that was short of the market average. On the bright side, the longer term returns (running at about 5% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. If you would like to research Electronic Arts in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course Electronic Arts may not be the best stock to buy . So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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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.
