Sea Ltd’s (NYSE: SE) stock has appreciated 67% year-to-date versus the Nasdaq’s 23% gain, and the risk-reward seems balanced, according to BofA Securities.

The Sea Analyst: Sachin Salgaonkar downgraded the rating for Sea from Buy to Neutral, while raising the price target from $380 to $385.

The Sea Thesis: Growth in gaming is likely to slow on a potential normalization post-COVID in 2022, Salgaonkar said in the downgrade note.

“Mgmt kept gaming guidance unchanged, implying slowing 4Q growth as well,” he added.

“We believe consensus is yet to factor in rising losses in the medium term based on expansion into new markets in Europe/India. The higher investments could drag FY22/23 cashflows,” the analyst wrote.

He reduced the earnings estimates for fiscal 2022 and 2023 from -$3.1 per share to -$5.72 and from -$1.05 per share to -$4.45 per share, respectively. “Despite the EPS cuts, we increase our PO marginally to $385 from $380 on back of a GMV increase in Shopee,” Salgaonkar mentioned.

SE Price Action: Shares of Sea had declined by 5.51% to $311.72 at the time of publication Wednesday.

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