NEW YORK (TheStreet) -- Investor enthusiasm over Star Wars: Battlefield has pushed shares of Electronic Arts (EA) - Get Reportup 108% in the last year. But wait for a selloff before playing around with EA.
Back in May, Electronic Arts reported a solid year. Fiscal 2015 revenue of $4.32 billion rose 7.4%, and the company reported earnings of $2.51 a share. But for 2016, management guided revenue to about $4.4 billion, an increase of just 3.6%.
Fiscal 2015 was the first year that revenue from digital sources exceeded revenue from packaged software. Because of that, Electronic Arts has been able to restructure, cut out the middleman and boost margins. Last year, gross margins hit 75.4%. Management expects to see further improvement in 2016. Analysts had forecast 2016 operating margins at 24.8%, but management guided to 26.6%.
The company believes the shift to digital can only help it, by extending the longevity of its most popular titles and allowing the company to sell additional items to end users.
EA expects to sell 9 million to 10 million units of Star Wars: Battlefront in fiscal 2016, but said upside could be as high as 15 million. Naturally, those comments reset expectations. Investors would be disappointed if the company wasn't able to sell at least 15 million units.
But I can't wrap my head around buying a stock that has low-single-digit revenue growth (3.6%) and whose stock price has already moved up 108% in the last year. The stock is more fairly valued in the $60 range (or 20 to 21 times fiscal 2016 estimates of $2.86).
If you want to get in on the Star Wars excitement, wait for a sell off. I would not play around with Electronic Arts at these levels. Log off and go play outside.
This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.