As Motley Fool Stock Advisor subscribers are now aware, Tom Gardner pulled the plug on the long-disappointing Shuffle Master
There's no question that Shuffle Master is the dominant table games player, with a near-lock on automatic shuffling machines and four out of the top five proprietary table games on the market. And while the company has certainly had integration problems with its acquisitions -- most notably the acquisition of Australia's Stargames -- there's little doubt about the products the company received from those acquisitions, primarily the Rapid series of live table games with electronic betting stations and the Vegas Star series of electronic table games. Moreover, the stock has limited downside at this point, in that the company's position would make it a prime acquisition target for another equipment manufacturer such as WMS Industries
There are a number of reasons why WMS -- or Bally's
1. Electronic table games. At this point, although WMS has some of the best slot products on the market, the company has yet to make a foray into electronic table games, where International Game Technology
2. Electronic poker tables. Aristocrat is the international distributor for Poker Tek's
3. Video poker. I think this possibility has been completely overlooked. Though WMS has made some headway recently, it's far from putting a real dent in IGT's crown in the video poker arena. While WMS does have the benefit of an exclusive license of Harrah's
This problem demands a different approach. As we noted last week, Shuffle Master has a knack for putting out creative new poker-based table games. Meanwhile, WMS has both the need and the slot technology to turn those table games into effective video poker machines. In doing so, WMS may be able to capture a new market of video poker players and acquire new floor space.
Positively Fifth Street
Here's the thing: If you bought the stock at $25, Shuffle Master probably looks like a disaster; but if you bought it at $16, it looks more like a hiccup. That said, despite recent managerial problems, I believe Shuffle Master is well positioned from a business standpoint, and it's just a matter of time before the company turns things around. Just as importantly, there are companies out there -- chiefly WMS -- that would be interested in what it has to offer via acquisition, limiting the downside of the stock.
So, although I would agree that it may be appropriate for some investors to take the tax loss and find another alternative, I don't think investors who choose to hold onto the stock can be getting much the worst of it from here.
Try your luck with more Foolishness from the casinos:
Shuffle Master is a former Stock Advisor recommendation. You can try the newsletter free for 30 days to read Tom's discussion about the company.