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| Getting
an Edge With Shuffle Master |
Published: January 5,
2007
Over the past year, the stocks of leading gaming firms like Las Vegas Sands (NYSE: LVS) and Wynn Resorts (Nasdaq: WYNN) have skyrocketed, in part because of optimism surrounding the development of new mega-resorts in the booming Macau market.
However, while nearly all of the casino operators have surged, their suppliers have (no pun intended) almost been lost in the shuffle. After all, for every opulent new casino that springs up, someone must provide an ongoing supply of cards, chips, dice, slot machines and other equipment.
This is where Shuffle Master (Nasdaq: SHFL) comes into play. Shuffle Master's area of expertise happens to be automatic card shufflers, which greatly speed up the play on a blackjack table -- and time is money. Squeezing out a few extra hands per hour can equate to millions of dollars in additional wins over time.
To date, Shuffle Master has sold more than 22,000 shuffling machines, and has a commanding 90% share of the global market for these timesaving devices. The firm is also a leading provider of roulette chip sorters, and is actively developing exciting new technologies that will keep it on pace in a rapidly growing field that has seen breakthroughs like radio frequency identification (RFID) embedded chips, sophisticated player tracking systems, and server-based slot machines.
Meanwhile, the company is also cashing in on the growing popularity of specialty games, which are commanding more and more space on the casino floor these days. In fact, the number of tables devoted to specialty games has spiked from 1,000 to 6,500 over the past fifteen years.
Shuffle Master has developed several of the most popular of these -- including "Let it Ride", "Three Card Poker" and a variant of the wildly popular "Texas Hold 'Em." The firm leases the rights to these games to casinos in exchange for a royalty fee.
In fiscal 2006, the company's installed base of games grew +15% to 4,200 tables, and leasing/royalty revenues in its entertainment division rose +67% to $76.1 million. On the product side, demand for next generation products pushed revenues up +30% to $87.1 million. Combined, the two segments generated operating cash flows of $35.7 million.
Shuffle Master is not without risks, and there is always the possibility that a competitor might develop superior products that devalue the firm's intellectual property rights. Nevertheless, the company is a clear leader in a fast-growing niche with explosive upside potential. As the needs of casino managers evolve to adapt to a much more high-tech environment, Shuffle Master will be prepared to meet the challenge.
As a young company in a rapidly changing industry, the road ahead might be bumpy at times, but analysts expect Shuffle Master to deliver sizzling annual earnings growth of +25% over the next five years. The firm has prodigious cash flow generation and an optimistic outlook, but our enthusiasm is tempered somewhat by the risks involved. As such, we would recommend a high 30% margin of safety before investing.
Note:
The above article was free advice given by Nathan
Slaughter and Paul Tracy -- the editors of Half-Priced
Stocks. The mission of Half-Priced Stocks is to
help readers identify securities that are trading at a steep
discount to their intrinsic net worth. In some cases this
discount can reach up to 50% or more, giving savvy value
investors the chance to purchase quality stocks for just pennies
on the dollar. To learn more about our Half-Priced Stocks
service, please visit the following link:
https://www.StreetAuthority.com/subscribe-hps.asp |
Thanks for reading!
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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