Monkey Slots - Slot Maker Poised to Bounce Back
The world of slot machines is becoming quite an
interesting one when it comes to its behavior at the stock exchange, and the
most prime example of this ever changing and slightly bi-polar industry is
WMS Industries. WMS is a slot machine manufacturer that has been pegged as
and underdog player in this market for the recent time being. But the little
slot machine maker that could is now showing resilience that investors can’t
help but appreciate.
WMS Industries has seemed to accomplish the
impossible by almost literally coming back from the dead with better, more
advanced technology, and also a more comprehensive approach to slot machines
and the video gaming industry in general. In 2001 the company faced a
dilemma unlike any other when a flaw in their slot machine software exposed
a weakness in the machines that allowed them to be vulnerable to cheats.
Rather, than risking the liability of their customers, WMS completely took
itself out of the market.
In this time period their stock became
non-existent, while their were spending their energy on creating more
advanced slot machine then were present any where else on the market, and
they also did the thing that is the mantra of every hard-core investor…they
diversified. As appose to covering a niche 35% percent of the slot machine
floor as most companies, WMS found ways to adapted their astounding
technology to cover a full 100% of the current slot machine floor.
Ordinarily, I don't spend too much time giving serious investment
consideration to second-best players. But in slot maker WMS
Industries (NYSE:
WMS - News),
we have a compelling picture: WMS is positioned to capture significant new
market share with new wide-area and local-area progressive participation
slots and new products that now address 100% of the slot floor (instead of
35%), while benefiting from both the coming wave of industry expansion and
the next slot replacement cycle.At
the same time, the stock has been beaten down in recent months, the company
has initiated a $20 million share buyback program, and -- at its recent
price of around $25 -- the stock trades at a reasonable discount to my
approximation of fair value.
The new WMS
WMS Industries'
turnaround story is for real. The company -- which had pioneered the
increasingly prominent multi-line video slot machine -- took itself out of
the game in 2001, when a software glitch that allowed slot players to cheat
compromised the integrity of its product. As a result, WMS' market share of
new game sales dropped from 18% prior to 2001 to roughly zero by 2003.
In 2002, leader International Game Technology (NYSE:
IGT -
News) commanded
more than 70% of new slot sales, while rivals Alliance Gaming (NYSE:
AGI -
News) and
Australia's Aristocrat accounted for less than a 15% share each.
But in 2003, WMS returned with a new operating system and a next-generation
slot cabinet code-named Bluebird that featured a high-resolution LCD monitor
and Bose speakers, helping to spark replacement sales as well as regain lost
market share. In addition to the new cabinets, a new premium-priced,
dual-screen version of them has also contributed to rising average selling
prices.
The average selling price of new slots has increased from $8,813 per machine
in fiscal 2004 to $10,250 in fiscal 2005, and to $11,309 in the most recent
quarter.
And in 2004, the company launched its first line of mechanical reel games
(45% of the typical slot floor) and video poker machines (15% of the slot
floor), as well as its first wide-area progressive (WAP) slots. As a result,
the very fact that WMS Industries now addresses 100% of the slot floor --
and has an attractive game portfolio -- positions it to gain significant
market share. |
