Me No Hearts Electronic Arts

Electronic Arts (ERTS) has been coming down, but I still don't think the stock is particularly attractive yet. Here's why:

1) The company's large size is an obstacle in a hit-driven environment. One big hit title just doesn't have a big impact on sales, the way it can for smaller publishers.

2) ERTS is clearly wearing out several key franchises, particularly Battlefield, with game quality on the decline. If the upcoming Battlefield: Bad Company flops, consider it an ominous sign.

3) Sony is at risk of losing substantial market share (will talk more about this in upcoming article) relative to the PS2-led cycle. Historically, ERTS has been very Sony-dependent.

4) Take Two has a very good shot at taking market share in sports games, particularly basketball. NBA Live has been a disaster for ERTS in terms of quality.

5) ERTS doesn't have anything in the "physical-interaction" category, which has been booming because of hits like Guitar Hero and the Nintendo Wii console, as well as the ongoing success of Dance Dance Revolution, which is interestingly enough showing up in school gym classes. (full disclosure, Activision (ATVI) which makes Guitar Hero, is a holding in the Breakout Stocks newsletter, current stance is Neutral)

6) ERTS could drive a backlash towards its in-game advertising methods, as it showed extremely poor taste with ads in Fight Night 3 and Battlefield: 2142.

I increasingly view video-game stocks as mere momentum plays to game the sales of particular sets of products, as it can be difficult to justify valuations based on peak earnings in 2009 or 2010. I gave some tips on tracking sales here.

And just a quick word on Logitech (LOGI). Logitech makes console-gaming accessories, and Sony losing market share would be a minor negative for the PC and electronics accessories giant. Logitech's Sony-tied stuff has traditionally done very well, though PC gaming accessories (a simply incredibly market to be in) is much more important to them these days.