Meeting expectations is no longer good enough for game maker Shuffle Master
Revenue increased 10% to $66.1 million, and net income grew 23% to $9.7 million. The company's transition to a recurring revenue model is going well, and expansion in gambling around the world is helping the industry grow.
The company's acquisition of Ongame had a negative effect on the current quarter, but it should be a strength going forward. Shuffle Master is trying to position itself to capture some of the profits if online poker is legalized. Ongame provides capabilities across multiple devices for online gaming and could tuck well into new game platforms as they're built.
Gaming suppliers have seen expectations rise, with International Game Technology
If Shuffle Master isn't able to outperform expectations in the current environment, the pace of growth will probably only slow in the coming years. Las Vegas Sands
The market reaction may seem overdone on the surface, because Shuffle Master did meet expectations, but in light of the run-up in shares and the dwindling growth opportunities, it seems more justified. Shares are now trading at 16 times fiscal 2012 earnings estimates, so there's beginning to be some value, but I wouldn't try catching this falling knife until the multiple falls a few more points.
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