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Zynga Shows Signs of a Turnaround to Play for Outsized Gains

Stocks in this article: ZNGA FB MSFT

NEW YORK (TheStreet) -- There's nothing like a turnaround story to play for potentially outsized capital gains, and that could be happening with Internet games maker Zynga (ZNGA).

Traders who've been around long enough to feel the elation of the well-executed bargain trade have come to realize turnaround stories offer one of the best opportunities to take the other side of a grand capitulation. Zynga ranks among those top high-profile opportunities.

Only three months after its reasonably successful December 2011 initial public offering it has been downhill for ZNGA. Investors were skittish about ZNGA's lack of depth in its bullpen of games and the company's reliance upon the third-party success of the Facebook (FB) platform.

At its peak price in $15.91 in March 2012, ZNGA plummeted nearly 87% to $2.09 per share by November. 2012. Shares currently trade at $3.32, down over 12% for the year to date.

Since November 2012, however, shrewd traders of this stock sensed too much blood in the street and bought a maligned company that still had $1.3 billion of liquid assets on its books, against a combined short and long-term liabilities of nearly half that much.

Those bold enough to realize ZNGA had plenty of time to correct a bad situation also believed a $2 share was worth a wait-and-see, especially when ZNGA's liquid assets amounted to approximately $1.50 per share.

The falling stock price provided an opportunity to reward the bold trader with a potential 181% return by March 2014. ZNGA steadily rose to as high as $5.89 from bargain hunting, short covering and, later, on optimism in July 2013 of a new experienced management team forming at the company, which is now headed by a former Microsoft (MSFT) executive responsible for successful sequels to the Xbox, Don Mattrick.

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