EA's rising stock options a cause for concern, say analysts

Market analysts have warned that trends regarding stock options at leading independent publisher Electronic Arts are a cause for concern over the company's future growth.

Shares in the company have risen to over $90 recently, representing growth of almost 24 per cent over the summer months - fuelled mostly by the company's astonishing annual growth rate of 19 per cent in the past three years.

However, some analysts believe that the company's share price growth may have reached its peak - at least for now. They point to a worrying trend in the company's behaviour regarding executive stock options as evidence of this - executives at EA are giving themselves increasing numbers of options, and exercising those options at a record pace.

Indeed, EA executives are cashing in on the success of the company at a rate of knots, with CEO Larry Probst raking in $17 million profit so far this year from selling off stock, and president John Riccitello making $2.6 million from exercising options and selling stock.

In general this is a sign that executives believe that the stock of the company is at or close to its peak valuation - or, as Wedbrush Morgan analyst Michael Pachter points out, "they believe there's more coming to them... Either way, you have to worry."

This insider selling is a key factor in Wedbrush Morgan deciding to lower its rating on EA from "Buy" to "Hold". Although the firm believes that EA's long-term prospects are positive, it describes itself as "hesitant to recommend the stock at its current price."

"We think that the stock may plateau for several months," according to Pachter. "We think that EA shares are fairly valued at current levels, and several qualitative issues, including insider selling and increasing stock options grants, cause us some concern about the stock over the near term."