They say where there’s risk there is reward. But in today’s market, one stock where the odds favor big upside relative to one’s exposure is mobile-game stock Zynga (NASDAQ:ZNGA).
Source: Brownpau via Flickr (Modified)
With investing in a gaming company like Zynga stock — which has had its share of ups over the years, there’s always going to be the bear argument and loose associations with long-defunct gaming-trailblazer Atari. And those doubting Thomases, to a certain extent, raise some valid points.
For example, Zynga stock’s mostly stagnant daily average user numbers the past few years are one concern. And competition from free-to-play gaming sensation Fortnite and established heavyweights like EA (NASDAQ:EA) and Activision (NASDAQ:ATVI) successfully engaging the mobile-first gaming market do appear to raise the specter of failure for ZNGA. But the bears are wrong to be so pessimistic.
Internal and external challenges aside, ZNGA is not in a ‘game over’ situation like Atari. In fact, while there are risks, that’s nothing new. What is new is Zynga’s successful pivot from a browser and PC-based model into a much more defensible mobile-first platform. And it’s been a game changer.
Zynga’s transition has boosted sales growth, earnings and even allowed the company’s operating cash flow to jump by more than 240% over the past year. Nice, right? But that’s not all either. According to InvestorPlace’s Wayne Duggan, this strategic move has made Zynga stock the fastest-growing player in the mobile-first market with an annual bookings run-rate of $1 billion.
Now and with multiple new game launches tied to wildly-popular Hollywood vehicles Game of Thrones, Harry Potter and Star Wars and “bold beats” updates to popular Zynga franchises; in our estimation it’s a ‘game on’ scenario for ZNGA off the price chart.
Zynga Stock Weekly Chart
On the price chart, Zynga stock also looks to be in a strong ‘game on’ position. The weekly view in Zynga stock shows a company that’s been already been very nice to its investors in 2019. But that’s not exactly unique, is it? All one has to do is consider the major average’s own double-digit gains to better appreciate the situation. Still and unlike the market, I believe Zynga is going higher from here.
What sets Zynga stock apart at this juncture is ZNGA’s bullish run just started a couple years ago. Following a near-crippling technical correction shares have re-emerged into a fairly solid-looking uptrend.
With ZNGA having consolidated laterally the past few weeks to digest its year-to-date gains and its 5-year highs just above current prices, conditions are ripe for a successful breakout. It’s anticipated a challenge of the immediate resistance will fall swiftly to the wayside and an even larger rally in 2019 is in store for Zynga stock.
For investors agreeable with our optimism for ZNGA off and on the price chart, shares are in position for purchase today. Realistically, this position has 5% to maybe 10% technical exposure before I’d pull the plug on any adverse moves from today’s price of $5.50. Regarding an upside target, I won’t bore you with Fibonacci levels or other potential hazards. Rather, I’d simply suggest peeling off some risk at $7.00 as that would allow for a realistic upside target that jibes nicely with the initial exposure and playing the game smartly.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
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