GPIC, which has yet to quantify the extent of its accounting problems, still has fans on Wall Street:
Gambling On Gaming Partners' Bookkeeper
Stephane Fitch 05.08.07, 6:00 AM ET
Gaming Partners International is a casino supplies company that has been a losing bet for investors recently. Money manager Jordan Kimmel, who recommended Gaming Partners in Forbes in March, is doubling down on its shares.
Kimmel's system for digging up compelling values in stocks with fast-rising sales has yielded some spectacular returns on other stocks. In March he said Gaming Partners' numbers look compelling. The Las Vegas-based manufacturer is the world’s biggest maker of casino chips. Its three brands of chips--Paulson, Bud Jones and B&G--Gaming Partners account for 70% of the world's poker chip market. And recently, it has also been selling a new kind of anti-cheat chip, embedded with radio-frequency identification technology. These smoke out counterfeiters and also monitor high rollers to see how they are faring.
Sales of the firm's chips, both high tech and low, are booming, up 30% to $75 million last year, as earnings soared 42% to $6 million. Back when Gaming Partners' stock was at $20, their price-to-earnings multiple was 22, much cheaper than what you'd pay to buy shares of the casino operators it sells to. Compared with other gaming suppliers, Kimmel added, Gaming Partners' price-to-sales ratio was also on the low side: trading at 2.2 times sales vs. the sector average of five times.
Then came the slide. Gaming Partners announced it would delay the release of its year-end audited financial results for 2006. The company said the delay was due to "deficiencies in accounting control procedures." On April 16, the company added that there would be a further delay and that the results, when released, would include "correction of a clerical error [that] reduced its third-quarter earnings per share by a cent."
Accounting problems are poisonous to any stock. Gaming Parnters shares plunged to $16. And a handful of plaintiffs' attorneys announced they would pursue class action lawsuits.
"Obviously everyone's frustrated," Kimmel says of the delay. The company hasn't disclosed any inside information to Kimmel (and wasn't able to respond to questions from Forbes before press time), but the money manager believes its problems are manageable.
It's not unusual for a small company to struggle to satisfy the Sarbanes-Oxley regulations that require them to carefully document all financial controls, he notes. Gaming Partners itself endured a similar episode in 2005. As for the penny a share correction, it isn't devastating for a company that's likely to see 90 cents a share in earnings this year.
Consider buying cautiously into the dip, Kimmel says: "Use the weakness to accumulate stock. The big complaint with this company had been how hard it was to buy shares. Now some weak hands panicked and it's a little easier." Kimmel has successfully doubled-down when his ideas hit bumps before. In 2005, he recommended the $40 shares of SFBC International just days before that company disclosed problems that cut the stock's price in half. The company has since reorganized, renamed itself PharmaNet Development Group (nasdaq: PDGI - news - people ) and recovered to $35 a share.
forbes.com |
