Zynga vs. Gravity: Which Video Game Stock is a Better Buy?

NASDAQ: ZNGA | Zynga Inc. -  News, Ratings, and Charts

ZNGA – Video gaming was an industry that saw strong gains during the pandemic in terms of hours spent gaming and spending on consoles and games. Going forward, the sector continues to look appealing as monetization is increasing. Patrick Ryan looks at two video game stocks and decides which is the better buy: Zynga (ZNGA) and Gravity (GRVY).

Video games were one of the big winners during the pandemic as gaming surged. Many analysts believed that the total addressable market of the gaming industry may have permanently increased as many who started will become lifelong gamers.

 

Of course, gaming is one of the most consumed forms of media, however, it’s still in the early stages of monetization. Developers are getting more creative by offering premium in-game features and upgrades that are proving successful in getting gamers to spend money.

 

Since the total market size is growing, there is plenty of opportunities in the sector beyond the well-known console and game developers. Below, we provide a quick look at two such stocks in Zynga (ZNGA) and Gravity (GRVY).
 
ZNGA

ZNGA develops, markets, and publishes social games primarily played on mobile devices. Though ZNGA games are not exactly epic adventures that prove indelible in the mind’s eye for years to come, they are fun distractions from everyday life.

ZNGA is riding high after its first-quarter earnings results impressed analysts and retail investors. The company’s first-quarter adjusted EBITDA was an impressive $123 million. This figure is $55 million higher than that from the same quarter in the year prior. ZNGA’s GAAP net losses dropped to -$23 million in the quarter from -$104 million in the same quarter last year. There are also some rumblings that ZNGA might be an acquisition target as the casual gaming crowd continues to serve as wind behind the company’s sales.

The analysts have established an average price target of $13.28 for ZNGA. If the stock hits this price point, it will have popped by more than 21%. The analysts’ highest target price for ZNGA is $15. The lowest target price for the stock is $9. A total of 19 analysts have issued ZNGA recommendations. Exactly six of these analysts view the stock as a Strong Buy, 12 consider it a Buy, one considers it a Hold and none view it as a Sell or Strong Sell.

ZNGA has a forward P/E ratio of 28. This elevated P/E ratio indicates the stock might be a bit overvalued. However, ZNGA is trading a couple of dollars below its 52-week high so the slightly elevated forward P/E ratio should not dissuade you from considering a position in the stock.

ZNGA has a C POWR Rating grade. The stock has Cs in the Quality, Value, and Momentum components of the POWR Ratings. ZNGA has an F Sentiment component grade. You can find out how ZNGA fares in the rest of the POWR Ratings components such as Stability and Growth by clicking here.

ZNGA is ranked 20th of 23 stocks in its Entertainment – Toys & Video Games category. You can find out more about the stocks in this space by clicking here.

GRVY

GRVY is a worldwide gaming and entertainment business. The company has extended the scope of its operations to include servicing web-based games along with multi-content and video game development.

GRVY has a B POWR Rating grade. The stock has an A Value component grade along with Bs in the Quality and Growth components. Click here to find out how GRVY fares in the rest of the POWR Ratings components such as Momentum, Sentiment, and Stability.

GRVY is ranked third of 23 publicly traded companies in the entertainment – Toys & Video Games category. As a whole, the sector has a C grade. Investors who would like to learn more about the stocks in this space can find out by clicking here.

GRVY is currently trading around $106. The stock’s 52-week high is $239.90. GRVY’s 52-week low is $49.50.

Which is the Better Buy?

GRVY doesn’t have the same name recognition as ZNGA. However, GRVY is the better buy of these two video game industry stocks. ZNGA has a C POWR Rating grade which indicates it is a Hold. GRVY has a B POWR Rating grade, meaning it is a Buy. Furthermore, it is not often that you have an opportunity to invest in a growth stock at a reasonable price that is ranked in the top five of its category. GRVY is ranked in the top three of its segment.


ZNGA shares were trading at $10.53 per share on Thursday morning, down $0.33 (-3.04%). Year-to-date, ZNGA has gained 6.69%, versus a 15.33% rise in the benchmark S&P 500 index during the same period.


About the Author: Patrick Ryan


Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
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GRVYGet RatingGet RatingGet Rating

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