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$7.2 billion
IndustryHome entertainment software
Trailing-12-Month Revenue$1.1 billion
ManagementFounder/Chairman/CEO Mark Pincus
CFO David Wehner
Trailing-12-Month Return on Equity(36.2%)
Cash/Debt$1.8 billion / $0
CompetitorsDena
Electronic Arts
Gameloft

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

On CAPS, 70% of the 429 members who have rated Zynga believe the stock will underperform the S&P 500 going forward.

Earlier this month, one of those Fools, dmiller5350, cautioned Fools about Zynga's faddish qualities:

Looked through all my old apps the other day and deleted a bunch of games exactly like the ones Zynga creates. All these games are addicting but ALWAYS short lived. ... Eventually Zynga titles won't be the next big game, and that's guaranteed. They spent way too much money to purchase OMGPOP for DrawSomething. I played that game for a week and was done, never was I even tempted to pay money. ...

The stock may pop briefly with [Facebook] IPO but it can't keep buying competitor games as the barrier of entry is so cheap there could be hundreds of thousands of competitors in the future. They'll also have a hard time being profitable in other channels. ...

This stock valuation is a joke and a house of cards, eventually it's going to come crashing down.

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At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. 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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