Here at the Fool, we've widely reported that small caps are often the first to lead markets out of a recession, and that the best time to buy these small caps is well in advance of a turnaround. So before this recession recoils, let's see whether tiny Gaming Partners International (NASDAQ:GPIC), a company that produces and supplies a variety of casino products such as playing cards, table layouts, and gaming chips, is worth a gamble.

Blackjack vs. poker
In blackjack, the odds are almost always against you. In poker, every participant has a chance to win, since you play not against the house, but against other players. One of the greatest strengths a player can have (besides skill, of course) is a fat wad of cash -- the ability to throw dollars on the table and wager up. Oftentimes, your victories at poker are due to the money you start with, rather than how you played at the end of a bourbon-filled Las Vegas night.

The same analogy holds true for stocks (minus the alcohol part, naturally): Realize that your purchase price often matters more than your sale price does. Fortunately, Gaming Partners International fits the bill.

  • Reason No. 1 to consider this stock: value. Currently listed at around $5, almost 30% below its 52-week high, this stock traded above $20 a share not so long ago. Add to this an attractive price-to-earnings ratio of 9.7 and we have, on the surface, a relatively cheap stock. So why is it so inexpensive? Common sense tells us that in a contracting economy, people gamble less, casino expansion dries up, and the entertainment industry will take a pretty bad beating. Similar to its immediate competitors over the past two years -- Elixir Gaming Technologies dropped 96% and Shuffle Master (NASDAQ:SHFL) fell by 57% -- Gaming Partners International's price has declined by 60%. So yes, it's "cheap," but is cheap always good? Let's investigate further.

Roulette vs. slot machines
I'll bet that a few hundred years ago, when members of the French royalty began playing roulette, they never imagined a world in which video poker and slot machines would be all the rage. And who can blame them? It's hard to foretell how quickly an industry may grow over time, and in what manner.

  • Reason No. 2 to consider this stock: growth. Gaming Partners International is a leading supplier of radio frequency identification device (RFID) chips -- the latest and most sophisticated anticounterfeiting feature. These chips not only prevent theft or fraud, but they also reliably transfer and communicate loads of data, to give casino operators more real-time information without having to employ human contact. This technology has large upside potential for casinos -- the typical Atlantic City casino loses an estimated $49.6 million a year from theft and counterfeiting -- as well as for Gaming Partners International, considering that the company derives more than 60% of its revenue from casino chips. RFID has already gained popularity, but it should truly take off as Gaming Partner International's continued partnership with International Game Technology (NYSE:IGT) allows for further expansion of RFID chips. Oh -- and did I mention that analysts expect the company to grow by 25% over the next five years-- that's a PEG ratio of less than 0.5. Who says you can't have both value and growth?

Craps vs. Nuff Said?
Bear with me on this one. Why is it that the craps game has been around for more than 200 years, while casino game Nuff Said never made it off the Ocean's Thirteen movie set? I don't know the exact answer, but it probably helps that craps offers an entertainment factor that has had the means to withstand an onslaught of new casino games over the past century.

  • Reason No. 3 to consider this stock: fundamentals. With more cash than debt and positive free cash flow, the company appears to be in good shape from a perspective of both short- and long-term solvency. Gaming Partners International boasts a nearly 12% return on equity and net profit margins of 7.7%, while both Elixir Gaming Technologies and Shuffle Master have posted negative numbers. In 2007, Gaming Partners International had an $11 million backlog, which provided the company with near-record earnings in 2008. Its 2008 backlog currently stands at $13 million, enough to set the ground for further financial success on a more than bumpy road.

What's the future hold?
In the long term, if Gaming Partners International can take advantage of a recovering casino industry by  courting the domestic heavies, such as Las Vegas Sands (NYSE:LVS), MGM Mirage (NYSE:MGM), and Wynn (NYSE:WYNN), then it has the ability to further expand its U.S. market share. And we already know management is active abroad, as demonstrated by its 2009 order agreements with the City of Dreams Casino in Macau, owned by Melco Crown Entertainment (NASDAQ:MPEL).

Smaller-cap companies are risky investments, and Gaming Partners International is actually even smaller than a small cap, with a current market cap of just $43 million. So the usual warnings about doing your own due diligence are even more critical in this case. You know how I feel about Gaming Partners International -- which is also a five-star CAPS pick – but please, leave a comment below and let me know whether you think there's money worth throwing in the pot here.

Fool contributor Jordan DiPietro doesn't own shares of any of the companies mentioned above, but he occasionally takes a thrashing at the AC Casinos. Feel free to check out his CAPS profile. Melco Crown Entertainment is a Motley Fool Global Gains selection. The Fool doesn't gamble with its disclosure policy.