Is It Time to Buy Electronic Arts Inc.'s Stock?

By Markets Fool.com

Electronic Arts has had an incredible run -- shares of the video game publisher have more than doubled in 2014. New consoles from Sony and Microsoft havebenefitedthe company'sbusiness, as gamers have eagerly snatched up Electronic Arts' latest titles.

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But after doubling, is it too late to buy Electronic Arts? At these levels, the stock isn't cheap, but the company appears to be firing on all cylinders. A new management team is successfully shifting the company's public image, and a strong slate of upcoming titles could continue to propel shares. Let's take a closer look to see if Electronic Arts is worthy of consideration by long term Foolish investors.

There are cheaper video game stocks
Electronic Arts is not an inordinately expensive stock, but it isn't particularly cheap either. Currently, Electronic Arts is trading with a price-to-earnings ratio of around 22, which makes it slightly more expensive than its chief rival, Activision-Blizzard.

Electronic Arts publishes games on a wide variety of platforms, including the PC and mobile devices. But Electronic Arts remains dependent on traditional consoles -- games released for the Xbox and PlayStation generate almost half of its revenue. Electronic Arts' core franchises -- including Madden, Battlefield and Dragon Age -- are among the best-selling on both platforms.

With sales of the newest consoles, the Xbox One and PlayStation 4, trending higher than their predecessors, the outlook for Electronic Arts' business appears bright, at least for the current console generation.

Execution has been virtually flawless
Of course, that will depend on the company's execution -- if the quality of its games slip, Electronic Arts' should stumble. That's always a possibility, but the under the stewardship of its new CEO, Andrew Wilson, Electronic Arts appears to be much better run today than any other time in its recent history.

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Electronic Arts' has a terrible reputation -- it was twice named the "worst company in America" -- and it's fairly well-deserved. In recent years, Electronic Arts had developed an unfortunate habit, often releasing its games in a broken state, seemingly rushing them out only to deliver a subpar product. Early adopters of both SimCity and Battlefield 4, for example, were forced to wait weeks for post-release patches, stuck with an almost unplayable game they had shelled out $60 for.

But that hasn't been the case in 2014: None of Electronic Arts' major releases have run into any significant issues. Moreover, management appears to be placing a priority on quality -- Battlefield: Hardline, the next installment in its Battlefield series, was originally slated for a fall 2014 release. Electronic Arts, however, chose to delay the game until March 2015, citing a desire to deliver a better product. Although news of the delay was initially met with selling pressure, if it produces a stronger game, it should ultimately benefit Electronic Arts shareholders.

In general, the quality of its games appears to be on the rise. Its most recent title, Dragon Age: Inquisition, received an 89 on Metacritic, a video game review aggregator, and won the coveted Game of the Year award at the recent Game Awards. Titanfall, released back in March, was also met with praise, though its success was limited by its Xbox exclusivity.

Among publishers, Electronic Arts has emerged as an innovator -- EA Access, its new subscription-based service, is unlike anything ever seen before in the video game space. For a low monthly fee, gamers get access to a vault of Electronic Arts' older titles, giving them access to quality games at an almost unbelievable price, while at the same time allowing Electronic Arts to monetize older games that otherwise wouldn't sell at retail. Electronic Arts' management has made other attempts at reaching out to gamers -- last weekend, it literally gave away three of its games (one of which was less than six months old) for no particular reason. That sort of strategy might not, at first glance, make sense financially, but it should strengthen the company's reputation among the gaming community.

Lastly, Electronic Arts could be poised to benefit from excitement surrounding the release of the next Star Wars trilogy. Last year, Electronic Arts signed a deal with Disney to release a number of games based on Star Wars -- among them, a new installment in the Star Wars: Battlefront series. Star Wars: Battlefront has not seen a sequel in nearly a decade, but remains highly regarded. If Electronic Arts can deliver a quality game, it should be one of 2015's best-selling video games.

Console demand should produce more upside
With the new consoles enjoying strong demand, Electronic Arts appears an attractive stock -- if gamers are buying these new consoles, they're going to need games to play. But there's more to it than that: It's new initiatives and a strong commitment to quality make Electronic Arts arguably the best-run company in its sector.

It's not cheap, and after running up more than 100%, investors may be inclined to wait it out. But as the current console generation progresses, Electronic Arts may just be getting started.

The article Is It Time to Buy Electronic Arts Inc.'s Stock? originally appeared on Fool.com.

Sam Mattera owns shares of Activision Blizzard. The Motley Fool recommends Activision Blizzard, Apple, Google (A shares), Google (C shares), Netflix, and Walt Disney. The Motley Fool owns shares of Activision Blizzard, Apple, Google (A shares), Google (C shares), Microsoft, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.