EA trades at 145x earnings while operating margins hit 7.4%, the 13th percentile of the decade — cash can't cure this valuation.
This framework sees a business generating substantial cash while destroying operational efficiency, trading at 145x earnings when margins sit near decade lows.
Are earnings predictable enough to own for decades?
This framework sees a formerly predictable earnings machine breaking down. While EA still beats estimates regularly, the underlying economics have deteriorated sharply — margins at 13th percentile suggest the competitive moat is eroding faster than management can adapt.
How much cash does an owner actually get to keep?
Applying this lens reveals a paradox: cash generation remains robust despite collapsing profitability margins. The elimination of SBC improves owner economics, but the extreme divergence between FCF and net income suggests significant non-cash charges are masking operational challenges.
Would buying the whole company today make mathematical sense?
This framework would never pay 145 times earnings for any business, especially one with margins at decade lows. The math simply doesn't work — you'd earn 0.17% yearly while treasuries pay 4.33% risk-free.
Are managers acting like owners or opportunists?
This framework sees troubling signals: managers are systematically selling while buying back shares at prices that have proven too high. The 20-quarter selling streak during strong cash generation suggests insiders lack confidence in the trajectory despite public optimism.
This framework sees a business caught between its past and future — generating impressive cash flows while operational efficiency collapses. At 145x earnings with margins near decade lows and insiders selling for 20 straight quarters, the disconnect between price and value is stark. The math doesn't work for a permanent owner, no matter how beloved the franchises. Would you pay $56 billion for a business earning 0.17% annually when treasuries pay 4.33%?
This analysis applies Warren Buffett's published investment framework to publicly available financial data. It is not authored by, endorsed by, or affiliated with Warren Buffett. Educational purposes only. Not financial advice.