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Trade-Ideas: Zynga (ZNGA) Is Today's "Water-Logged And Getting Wetter" Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Zynga ( ZNGA) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Zynga as such a stock due to the following factors:

  • ZNGA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $106.6 million.
  • ZNGA has traded 29.0 million shares today.
  • ZNGA traded in a range 243% of the normal price range with a price range of $0.35.
  • ZNGA traded below its daily resistance level (quality: 2 days, meaning that the stock is crossing a resistance level set by the last 2 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in ZNGA with the Ticky from Trade-Ideas. See the FREE profile for ZNGA NOW at Trade-Ideas

More details on ZNGA:

Zynga Inc. develops, markets, and operates online social games as live services on the Internet, social networking sites, and mobile platforms in the United States and internationally. Currently there is 1 analyst that rates Zynga a buy, 3 analysts rate it a sell, and 19 rate it a hold.

The average volume for Zynga has been 23.8 million shares per day over the past 30 days. Zynga has a market cap of $2.2 billion and is part of the technology sector and computer software & services industry. Shares are up 53% year to date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Zynga as a sell. Among the areas we feel are negative, one of the most important has been weak operating cash flow.

Highlights from the ratings report include:

  • Net operating cash flow has significantly decreased to -$0.65 million or 100.96% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Software industry and the overall market, ZYNGA INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Software industry average, but is greater than that of the S&P 500. The net income increased by 30.7% when compared to the same quarter one year prior, rising from -$22.81 million to -$15.81 million.
  • The revenue fell significantly faster than the industry average of 6.1%. Since the same quarter one year prior, revenues fell by 30.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

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