1-Star Stocks Poised to Plunge: Zynga?

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, online social games operator Zynga (NAS: ZNGA) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Zynga's business and see what CAPS investors are saying about the stock right now.

Zyngafacts

Headquarters (Founded)San Francisco (2007)
Market Cap$6.62 billion
IndustryHome entertainment software
Trailing-12-Month Revenue$1.02 billion
ManagementFounder/Chairman/CEO Mark Pincus
CFO David Wehner
Trailing-12-Month Operating Margin11.0%
Cash/Debt$926 million / $0
CompetitorsActivision Blizzard (NAS: ATVI)
Electronic Arts (NAS: EA)

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 86% of the 192 members who have rated Zynga in believe the stock will underperform the S&P 500 going forward. These bears include webhappy and AWinvestments.  

Earlier this week, webhappy cautioned our community about buying into Zynga: "No moat to prevent users from defecting to rivals in the future. Facebook really has all the power here. I also think users have peaked as people realize how mindless their games are."

In fact, Zynga currently sports a rather lofty forward P/E of 47. That represents a clear premium to other video game developers like Activision (12), Electronic Arts (17), and Take-Two Interactive (NAS: TTWO) (5).

CAPS member AWinvestments elaborates on the bear case:

Zynga has a few hits, such as Farmville and Cityville. However, a few hits doesn't assure long-term success in the brutal business of gaming. ... So, it is a much better and safer idea to go with a company that's been around for decades, making some of the biggest gaming franchises, such as John Madden Football by Electronic Arts. As for Zynga, there's no evidence yet that this horse will ever run and by the time the IPO holders can trade this over-hyped stock, an investor in the public markets could be left holding a big bag of nothing but hope. Pass.

What do you think about Zynga, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

Want to see how well (or not so well) the stocks in this series are performing? Follow the newTrackPoisedToCAPS account.

At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Activision and Take Two and has written calls on Activision. Motley Fool newsletter services have recommended buying shares of Activision and Take-Two, as well as creating a synthetic long position in Activision. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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