Electronic Arts Reboots

The video game stock has been a laggard – but fund managers and analysts say it will bounce back soon.

Once a blazing hot tech stock, Electronic Arts (ERTS), the maker of "Madden" and "Rock Band," is badly in need of a restart. The video game company's shares have sunk 63% over the last three years while the NASDAQ has been flat. Sales growth slowed after EA failed to anticipate the popularity of the Nintendo Wii. Management insists that a turnaround is underway — but a series of earnings misses have undermined their credibility, and investors shunned the stock during last year's bull market.

The stock's 2011 price to earnings ratio of 31 doesn't look cheap, but it was trading at 140 times earnings just three years ago. Harry Rady, CEO of Rady Asset Management, says that, given the company's $1.1 billion cash hoard, it would become an acquisition target for big media companies or private equity firms if shares fell further. "The company could be LBO'd very easily," he says.