There are a lot of companies in the gaming industry that have benefited from hyper-hot Las Vegas, the exploding worldwide interest in poker, and the expansion of gambling in general. The list includes casino operators such as Harrah's Entertainment
And then, of course, there's this sweet, not-so-hidden gem -- card shuffler maker, table games developer, and Motley Fool Stock Advisor selection Shuffle Master
Shuffle Master capped off its fiscal year by reporting solid fourth-quarter growth. For the quarter, the company saw revenues jump 48%, to $25.9 million, from the year-ago quarter. Meanwhile, diluted earnings per share from continuing operations climbed 29% to $0.27 per share as net income grew 33% to $10.6 million.
The company posted strong gains across both its business lines.
The card shuffler segment saw revenues climb 56% to $15.4 million. The leasing component increased 11% to $5.1 million, while sales and service revenue almost doubled to $10.3 million. Sales and service growth was driven primarily from the May acquisition of Austria's CARD, which contributed sales of its multideck continuous shuffler. The company also noted strong demand for its Deck Mate shufflers, which are the default automatic shufflers used in poker rooms.
Meanwhile, revenues from the high-margin entertainment products business -- featuring the table games Three Card Poker and Let It Ride, as well as the new Four Card Poker -- grew 37% to $10.4 million. In addition, Shuffle Master said that its February acquisition of BET Technology -- bringing properties such as Royal Match side bet for blackjack, Fortune Pai Gow Poker, and Casino War -- added approximately 1,100 games to the company's installed base of proprietary tables.
Shuffle Master's fourth quarter was rock solid. However, the company's first-quarter outlook did disappoint some investors, dropping the stock 4% to $42.40 in after-hours trading yesterday. The company said that it expected first-quarter earnings of $0.21 to $0.23 per share, short of the $0.25 per share analyst estimate. Full-year earnings are expected to be between $1.14 and $1.18 per share, roughly in line with the analyst estimate.
With all of the positives, I do have one gripe, and it has nothing to do with the business.
Prior to the earnings release, Shuffle Master said it was "pleased to announce [its] second three-for-two stock split this calendar year." CFO Richard L. Baldwin noted that the company's market cap had passed the $1 billion threshold and that the company wanted to provide more liquidity as the stock is now open to a much larger group of investors.
That last part is fine, but practically speaking, the company should approach the stock split with indifference rather than "pleasure," as the split itself adds zero intrinsic value. And then in the earnings release, the company went on to list the initial April three-for-two stock split under its "fiscal 2004 accomplishments."
Amazingly, the Associated Press and Reuters implied and outright stated, respectively, that the stock split announcement was linked to the stock price's after-hours decline, which also makes no practical sense to me.
But for a fundamentally sound business with strong competitive advantages and a long-term view, there really isn't any reason for a company to talk about its stock unless it is buying back shares (which Shuffle Master has done), or it thinks its shares are expensive (which Berkshire Hathaway
Otherwise, Shuffle Master remains one of the more attractive companies in the gaming industry. However, the stock does carry a premium valuation -- and deservedly so -- at 37 times next year's earnings.
For more on Shuffle Master, check out:
- High-Tech Las Vegas
- Milking the World Series of Poker
- A Big Winner in Gaming
- Dealing Gems
- Shuffle Master's Ace Earnings
Fool contributor Jeff Hwang owns shares of International Game Technology.
