Is this too obvious? In an acquisition-obsessed market, are buyers actually looking for companies selling for below intrinsic value? Probably not, you say -- it makes too much sense!
Garnering acquisition interest today is lottery and gaming specialist GTECH Holdings
The number-crunchers at the Motley Fool Inside Value newsletter (specializing as they do in screening for the best stock values using discounted cash flows to find the real winners based on intrinsic value) recommended GTECH to their readers in May (and, you guessed it, at far less than its price today). Trouble with the Brazilian lottery, coupled with some pretty tough competition, had this premier company back on its heels -- and well into value territory.
But when first-quarter earnings were announced, the company was optimistic about Brazil and said that it expected earnings of $1.64 to $1.70 a share for the current fiscal year (which ends in February). Not a bad improvement from $1.50 last year.
Since then, the company has announced more terminal and game sales to California, the conversion of the New Zealand lottery (already to customer) to a new generation of equipment, and an upgrade to a lottery system in Spain. And that's just a partial list.
So is GTECH still a value-priced stock?
GTECH is trading for 22.6 times trailing earnings, and analysts expect earnings to compound at 12% a year. To my eye, that's a rich premium for growth that barely exceeds the 10.6% growth expected for the S&P 500 -- hardly value territory.
The company also faces competition from Scientific Games