Last October casino operator and No. 2 slot machine manufacturer Alliance Gaming
Today the company announced that second-quarter revenue increased 4.7%. That was the good news. Income from continuing operations swung from a $14.2 million profit for last year's fiscal second quarter to a $7.5 million loss (although there were one-time charges of $11.7 million) in the most recent second quarter.
Lousy results, right? So, why is the stock the largest percentage gainer on the NYSE? Moreover, does Wall Street's feeding frenzy portend a sound long-term investment?
Sending the stock up to $11.85 (a gain of almost 19%) is news that company "expects to return to profitability in both the third and fourth quarters of fiscal year 2005." Wow, a profit! That's great. But analysts were already expecting that.
Look at this quarter's details, and you have to wonder what Wall Street is all excited about. Quarterly EBITDA -- basically operating income sans the depleting effect of depreciation and amortization, and a common (though not always appropriate) proxy for cash flow -- dropped from $34 million to $16 million on a year-over-year basis. The quarter would have looked downright ugly if gaming operation revenue had not almost doubled.
The balance sheet is nothing to cheer about, either. Industry leader International Game Technology
Some will look at the returning profitability, and the April high of $34.16 a share, and see great opportunity ahead for stock appreciation. Those who look at the fundamentals will see the stock is selling at forward price to earnings of 17 times. That's about right when you can buy a rock solid balance sheet and good prospects at International Game Technology for 19 times forward earnings.
In gaming parlance, Alliance paid off big today, but I'd say the odds are against a similar gain in the near future.