Transaction-based printer company TransActTechnologies (NASDAQ:TACT) reported spectacular annual results after the market closed yesterday. The company has capitalized on the trend toward the coinless -- or ticket-in-ticket-out -- slot machines and has seen a significant increase in revenues over the past two years. This year revenues increased 15% to $59.8 million, and greater effeciencies boosted gross and operating margins 36.8% and 14.1%, respectively. The snowball effect caused a 325% liftoff in EPS. It's nice to see that someone besides my grandfather can get money out of these often-maligned one-armed bandits.

Even though yearly results were quite impressive, the fourth quarter resulted in the lowest revenues, earnings per diluted share, and gross and operating margin levels of any quarter of 2004. It was not all aces for the gaming and lottery segment -- the largest area of revenue for the company. Increased international market sales could not make up for a slumping domestic market in December as revenues increased just 11%. The one-armed bandit strikes again -- argh!

But the Foolish investor should take note that a diversified TransAct means multiple avenues for growth. The point-of-service (POS) and banking market increased 21% in 2004, and the TransAct services group increased 18% -- both in line with company estimates. As banks comply with the Check21 initiative, several major banks have signed on to have its BANKjet printers installed. In addition, a major restaurant has inked a deal for 1,500 to 2,000 KITCHENjet printers for a chainwide rollout to be completed in the next 12-15 months.

The only problem the company has is that it will not see a significant impact from these areas of growth until the second half of the year. Because of the uncertainty of domestic gaming and lottery sales, there may be significant pressure on the stock in the short term. With the one analyst following the company projecting 40% revenue growth over the next five years, a flat opening quarter for the year would not be good.

However, management was upbeat and bold enough to project revenues and earnings per share through 2008! That is simply unheard of on Wall Street. Management thinks it can double revenues and triple profits by 2008 and was very open with its strategy to do so. Along with a return of higher domestic slot machine sales, the international market is untapped, and the company now believes that Europe is just as big of a market as Australia with a total international market for approximately 400,000 printers. The integration of TransAct printers with International Gaming Technologies (NYSE:IGT) machines should be finished in the next several months, and the agreement signed the end of last year means TransAct will be the standard for all new IGT machines. Combined with the previously mentioned POS and banking growth, a further increase in the installed printer base means the TransAct services group should continue to see increases in revenue and profitability, as well.

On a side note -- IGT is worth a look, as this dividend-paying company is trading near its 52-week low and would greatly benefit from the return of domestic gaming machine sales.

Although the fact that shares are off more than 28% today would make you think that TransAct is getting ready to fold its cards, the market may be dealing investors a straight flush -- a lucrative hand I've had the pleasure of getting once at the casino. At $13, the company is trading at under 25 times owner earnings -- a level it has not seen since it began bringing in a steady profit two years ago. But investors could do very well if they are bold enough to be patient with this highly volatile stock. This could be the unfolding of one of those rare combos of value and growth that small-cap investors will want to cash their chips in on.

Fool contributor John Bluis does not own shares of any company mentioned in this article and has still not given all the money back to the casino from that straight flush. The Motley Fool is investors writing for investors.