Is EA stock a buy after hack report?

Electronic Arts Inc. (NASDAQ:EA) said Thursday that hackers breached its network and stole game source code. The video games publisher said the hack did not compromise player data.

“No player data was accessed, and we have no reason to believe there is any risk to player privacy. Following the incident, we’ve already made security improvements and do not expect an impact on our games or our business. We are actively working with law enforcement officials and other experts as part of this ongoing criminal investigation,” EA spokesperson said after the incident.

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EA share price dropped 1.6% to trade at $143.98 before recovering later to close at $145.72. According to video game developers, game source code can be reverse-engineered to change parts of the game. Therefore, the hack could come back to haunt EA even though the hacker did not access player data.

Is EA stock a buy?

EA shares currently trade at a P/E ratio of 50.86. This is significantly higher than close peer Activision Blizzard Inc.’s (NASDAQ:ATVI) equivalent of 34.64. However, when we consider expected earnings growth over the next 12 months, EA valuation becomes more compelling. 

EA stock trades at a forward P/E ratio of 20.52 compared to ATVI’s equivalent of 21.95. Therefore, from this perspective, EA stock looks like a buy. But investors should also watch out for the developments in the recent breach. It could change the immediate outlook for EA.

Technical overview

Technically, EA shares are trading at an ascending channel formation in the daily chart. This indicates a bullish bias in the market sentiment. The increase in the stock price has pushed EA shares closer to the overbought levels of the 14-day RSI. This could force investors to take profits, subjecting the share price to a pullback.

Investors still optimistic on EA shares can target profits at $151.30 or higher at $156.53. On the other hand, investors looking for pullbacks can target bearish profits at $141.31 and $135.86. Jefferies analysts recently upgraded the stock to a buy with a price target of $165.00 up from $140.00.

Bottom line: EA share price faces a potential pullback

Electronic Arts shares are closer to reaching overbought levels of the 14-day RSI. The company’s recent hacking that led to the loss of source code could have an adverse impact on the stock price. Therefore, although EA shares appeared unaffected by the hacking news on Thursday, the problem may not be over. 

EA shares also look expensively priced compared to close peer ATVI. You cannot place a lot of weight on the projected earnings growth until they are realised. Therefore, EA stock looks likely to pull back in the short term.