The balance sheet is the best financial statement to get a quick snapshot of a company’s overall financial health. It shows you accumulation of all profits, expenses, debts, and retained earnings the company has accumulated up to that point — which makes it a great place to quickly scan for signs of a potential winning investment. With balance sheets boasting minimal to no debt and strong net cash positions, the three stocks below might be worth a closer look.
Will Zynga Inc (NASDAQ:ZNGA) Actually Move Higher?
This is a question many investors have been asking of the social media video game maker. It has barely been public more than a year, but it’s already down approximately 80% from its $15.91 all-time high, and approximately 65% since it went public on December 16, 2011.
The company has had a recent exodus of senior managers, most recently Chief Game Designer Brian Reynolds, and investors remain quite skeptical about its future revenue growth. So why would anybody buy the stock?
That can be answered in one word: cash. In its most recent quarter, Zynga reported having approximately $1.3 billion in cash against only $100 million in debt. That means the company is approximately 50% net cash at its current trading price — a very strong net cash position.
In addition, the company has operationally performed rather well, meeting or exceeding analyst estimates in three of its last four quarters. Moreover, those same analysts expect a strong 20% per annum revenue growth over the next five years. Lastly, with a relatively cheap enterprise value/EBITDA valuation of 1x, and the company’s positive free cash flow near $20 million the last quarter, I think investors have some legitimate optimism with the stock.
If you’re looking to diversify this position with another cash-rich video game maker, look no further than Activision Blizzard, Inc. (NASDAQ:ATVI). The company just recently scorched higher on a blowout earnings report that smashed consensus estimates by $0.06. Its diversified video game lineup seems to be working out well for the firm, which currently enjoys great success with Call of Duty and Skylanders. However, as Activision sits at a new 52-week high, should we buy the stock as well?
Activision has in fact smashed consensus earnings estimates in each of the last four quarters by an average of 53.3%, giving us a clear indication that the company is firing on all cylinders. Moreover, with a debt-free balance sheet and approximately $4 per share in net cash, the company has a very strong financial position. Its relatively strong 30% operating margins and 1.4% dividend yield make it all the more tempting. And its mouth-watering free cash flow, at approximately $1 billion annually, gives me a final reason to believe that Activision is a winner.
Is It Time to Finally Buy Groupon Inc (NASDAQ:GRPN) ?
I don’t know about you, but I have used Groupon Inc (NASDAQ:GRPN)’s services frequently; they simply provide a nice product at a great price. Unfortunately, like Zynga, the stock has been horrendous, down approximately 80% from its IPO on Nov. 4, 2011. Fortunately, though, like Zynga, it has a sterling balance sheet: absolutely no debt, and just over $1.80 per share in net cash. Does this mean it is time to buy Groupon as well?