Ten years ago, finding a poker match on television would've been considered a long shot. Not so anymore. The Saturday morning ritual of watching Wile E. Coyote chase after the Road Runner has now been supplanted by watching the two sitting down to a head-to-head poker match.
It's not quite that crazy, but it sure is getting there. Televised poker, sparked largely by the World Poker Tour's (NASDAQ:WPTE) TV success, appears every day of the week, and on a variety of channels from ESPN to E!. It's safe to say that gaming is booming.
With the industry enjoying a direct feed into the public's mind -- and wallet -- it's perhaps no surprise that Motley Fool Stock Advisor pick Shuffle Master (NASDAQ:SHFL), maker of electronic card-shuffling machines, once again posted strong quarterly sales.
The company laid down a royal flush with quarterly revenues that increased 35% year-over-year to $27.1 million. Now through two quarters of fiscal 2005, its sales are up 47%, compared with the same period a year ago.
The strength of its revenue growth is in its card-shuffling systems -- I guess the company isn't called Shuffle Master for nothing. The company highlighted the leasing of its Deck Mate, MD2, and one2six shuffle systems as the main source of its sales growth.
There's no question its business is booming, but shareholders may be a bit disappointed to see Shuffle Master's operating margins take such a beating. They declined 12.1% from last year's first-quarter level of 43.7% to the latest mark of 38.4%.
The company highlighted a list of reasons for the profit pressure, including accounting-compliance fees and legal expenses. Despite higher average selling prices for its shuffle units, Shuffle Master was unable to absorb these rising costs. So even though its net income increased 12.5% to $6.8 million, as a percentage of revenue, earnings declined to 25.2% vs. 27.3% from a year ago.
The bad news is that profit margins took a hit this quarter. The good news is that we're still talking about a company with double-digit revenue growth, pulling in 25% net profit margins. With that kind of hand, you can see why investors have bid up this stock at around 37 times this year's earnings.
As the market digests the company's profit pressure, Shuffle Master's stock may signal a retreat. Any significant sell-off may present a good opportunity to play your hand in a hot investment.
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Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.
