Shuffle Master a good bet?
March 14, 2007 11:59 am
Shuffle Master is a name that you should really look at as a play on the gaming market domestically and internationally, The reality is that it is a “picks and shovels” approach to the gaming industry.
They are a great benefit to the casinos as they are in the business of moving the odds towards the house with their games and particularity their shuffle machines. It has been shown that the automatic/continuous shuffle machines can bring the odds almost 1% better towards the house. That is big.
One of the main reasons that casinos use the automatic shuffle machines is that “Automatic shufflers remove the human element from the shuffling process”, according to Shuffle Master. The more games, the more chance the house has to win.
Between the royalties on the games such as specialty poker (Ultimate Texas Hold’em, 3-Card Poker etc.) and specialty blackjack, along with sales and service on the continuous shuffle machines, we have a good outlook as the gaming industry expands.
The recent downturn is vastly overdone, and the general market jitters have not helped the fact that the recent delays and the lack of information from SHFL is problematic, but it is not as bad as many of the sellers are predicting.
It seems that management has drifted a touch, but at these prices ($17+ as of this post). There needs to be a change at the top and a new course set to look to get back investor support.
According to a recent news release: “The maker of automatic card-shuffling and casino chip sorters said it uncovered an accounting error related to profit recorded on inventory purchased from subsidiary Casinos Austria Research & Development GmbH & Co.
The error resulted in a $1.2 million overstatement of net income for 2006, and the company said it will restate its fourth-quarter and full-year 2006 results. ”
The overstatement and the error was self reported. That is a good sign that there seems to be a desire to clean up the act by the management. We would consider averaging down this position if held and adding as a new position at prices under $19.
As of this post, Horowitz & Company clients own shares of this stock.