We've talked a bit in recent months about some of the more successful companies in the gaming business, including casino operators such as Ameristar Casinos
There's also one gaming company that should be pretty easy to steer clear of, despite the fact that it has a few very recognizable products.
Today's topic is Mikohn Gaming
Sure, the mostly profitless company now expects to at least break even in the third quarter. Mikohn even said it would generate $2 to $3 million of free cash flow in the quarter and a total of $2 to $4 million in free cash flow for the entire fiscal year 2004.
That sounds nice, but that's not the part that stung. What really hit me was the opening paragraph of the earnings release. After noting that the company had cut its quarterly loss to $0.04 per share and that "the analysts' consensus was a net loss of $0.06 as reported by First Call," the company closed it by saying, "This marks the best quarterly performance by the Company in 18 months and exceeded analysts' consensus for the second consecutive quarter."
Wow. Beating estimates is one thing. But when a company talks about beating an analyst estimate as if that is one key measure that will separate a good report from a bad one or a "winning" stock from a "loser," you have to be concerned that its priorities are not straight. And that's beside the fact that such a statement has no place in a company's business report.
The danger is that if a company's management puts too much emphasis on matching someone else's expectations, it may be tempted to make improper decisions that would boost a quarterly accounting figure at the expense of the company's long-term health. Worse, management might even feel encouraged to fudge around with the numbers.
This is not dissimilar from the discussion we had regarding Lakes Entertainment
Frankly, I don't even think Mikohn is worth worrying about. It is neither one of the top slot makers nor a runaway success with its table games business. Despite Mikohn's possession of the popular Caribbean Stud property, the only truly viable player in the table games business is Shuffle Master.
If Mikohn shares are cheap -- and I have seen no reason to believe they are -- they're cheap for a reason. And unless Mikohn ever presents itself as an obvious deep value, I think it's a pretty easy stock to avoid.
Fool contributor Jeff Hwang owns shares of Ameristar Casinos, International Game Technology, and Lakes Entertainment.