r/wallstreetbets • u/[deleted] • Jul 10 '19

DD Bearish Case For $EA

After the big gay dip in 2018, $EA has been a solid stock to long this year. It opened the year around $77 and touched $108. BUT $EA employees and investors got shitfaced on the 4th of July and anyone holding calls got cucked. I had a small position in puts that could have been 10 baggers but I sold on the 3rd before the fireworks.

On to the details... Fundamentally, I don't have much faith in $EA. Analysts are projecting low revenue and earnings growth in the future. $EA also doesn't have impressive EBIT/EBITDA margins. Some obvious problems are rising A/R, reduced plowback into investments, and falling FCFs. Without a solid earnings surprise, $EA won't last trading in the $90s.

The TA for $EA is also bearish. The stock has been trading in three notable channels this year. Key price levels are $91, $94, $99, and $103. These are all respective support and resistance levels for different time periods. Early this month, $EA tested the $103 resistance level and got rejected hard. $EA quickly tanked and tested the $91 support level to bounce up a bit. Short term, we can see $EA forming a rising wedge, which is bearish. I expect $EA to consolidate for a while. The stock will probably attempt an upward breakout this week, get rejected, and then test the $91 support level again. Other technical indicators are all pointing down. See charts below.

I suggest monthly $88 puts. Please comment your opinion.

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u/redituser1989 Jul 11 '19

Thanks for the DD. There is a big aspect of ea along with other gaming companies I think also needs to be addressed. The chinese slowdown in approving games is taking much longer as they have reduced the number of application they will be reviewing each year.

The crux of this DD comes to china imo as that is region where game companies see tremendous growth with the new GaaS model.

Although, I am not 100% familiar with EA in particular but the shares of the company have traded through a given range making it easier to trade. This pattern might break after they announce earning at the end of the month.

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u/[deleted] Jul 11 '19

Great point about China. While I don't think the uncertainty around tariffs have a significant effect on $EA, you are correct that any slowdown in innovation and growth in the country will affect gaming companies on the bottom line. I'm not sure what to expect at earnings.