SHFL any news?

[David Steele]

Should we sell ever? Made a big killing so far
on this DS tip.

D.

[Mark Heide]

David,

This stock appears to do well. The fundamental model I use to evaluate this stock recommends it, but if you are a person that does technical analysis you may want to sell it now if you were planning on selling it this year. If you look at its chart from the past three years it has frequently peaked in May and loses some value by August. By the end of August it has picked up steam and has reached even higher levels. Here's a link to the chart:

http://www.quicken.com/investments/c...aq=&p=SHFL

Here's a link to the model that I use for stock evaluation:

http://www.quicken.com/investments/s...;recstrat=fool

For a long term investment, I see this as something to keep. But, if it follows previous technical trends over the last three years, you may want to sell.

Mark

[Wildbill]

This company continually follows this model for simple timing reasons. The big show, the only one that really matters in the gaming supplier industry is in September, when all the new products are show and for a company like SHFL 10-20% of orders are taken. Those orders tend to be shipped near the end of the year, early next calendar year. The company makes a lot of its money off leases as well and those generally backlog until about the same time. So the company gets a nice big hit around February and gets a full quarter of benefit from that. That is what they reported earnings on today, that traditionally good quarter, after which things calm down. Then in early September the stock runs up again in anticipation of the gaming show, much like all the suppliers such as IGT and AGI. Its always been easy money to buy these stocks around the end of August and then sell them right around the 1st or 2nd day of the show when the hype and expectations become reality.

I am guessing there are other names in other industries that have a similar pattern, but this is a company I am extremely familiar with. They have thin volumes of trade and the insiders almost never sell except option related stuff so the stock really has little to move on most of the year outside these two periods. They aren't as news sensitive as the other suppliers because most of their business remains shuffling machines and themed table games, two categories they don't face a whole lot of viable competition from. They have done well this year because of AZ legalizing blackjack and then requiring a shuffler on the table, talk about a "loaded deck" for this company [img]/forums/images/icons/grin.gif[/img]

Hard to say if I think its a stock that should never be sold. Their margins are borderline ridiculous, but that speaks to their wise avoidance of anything that could compete with them and the fact that they took a product that should be a normal for sale item and forced most of their customers to pay monthly rent on them to the point that they earn far more than they should. Chalk that up to wise management, but also gaming regulations that will only allow very few products onto the tables and strict rules regarding them and their manufacturers. In time though continuing on this 20-25% growth path might be difficult as they are trying to diversify into slot machine game creation, a much tougher field with a lot of strong competitors. As long as they don't stray too far from their nicely protected markets then I can say they are a good company to hold, but I suspect in 2 or 3 years their future won't be quite as rosy.

[Ulysses]

Big jump in advance of their earnings announcement. Any thoughts?

[Wildbill]

Almost has to be insider related stuff. This is right about the time when many people outside the very inner circle have insight into what the numbers will be exactly so its probably been whispered or even traded by those not kept to a trading window. I know Ray Zee will come out asking about insider trading, but call it what it is I guess. This moves are almost always good signs for a short time trade, but often its best to get out just before the actual announcement.

[Ray Zee]

i am very keen on insider trading. but most often run ups do not really reflect the real situation even if its from insiders. as few can really gauge what numbers means or get the facts straight.

but insider selling is a good flag. this tells us that something isnt right in the comapny, and insiders do know this. so when they sell, it means the stock is going down or the company has made some mistakes. many times those mistakes dont hurt them and the stock recovers.
in a smaller company if the insiders are selling why keep the stock.

[Ulysses]

So, here's the dilemma. Looking at the model described in the first couple of posts by you and Mark, it's tempting to hold this for a few more weeks (or longer).

On the flip side, it seems like these pre-announcement run-ups are almost inevitably followed up with a (sometimes sharp) drop after the actual numbers come out. Which makes it tempting to get out now.

No real opinion or conclusion here, just rambling.

[Wildbill]

Ain't no insider selling in this stock and even if they did its effect on a day to day basis would be minimal since its something like 2% owned by insiders. Not to mention insiders are never allowed to sell at a time like this.

Lets just say I have a lot of insight on it as I know some real key people there. They don't tell me exactly what is going on, but from my job and my view on the company from both insiders and competitive reasons I can tell you this is exactly what is happening here. I will leave it at that. Their numbers are going to be good, really good. Whether this makes for a good long-term investment I don't know. Its a growth company with still a lot of growth out there, but its the typical question with these small cap types. Just how will they top their gangbusters growth with more of the same? Stay tuned for that.

[Wildbill]

Are you a trader or an investor? That is all there is to it. They might fall off from the high they will inevitably hit sometime this week, but in the long run they probably will be even higher in value than they stand today. If you want to play the percentages I would say sell about 15 minutes before close just before their release and expect to get in a week or two afterwards. But of course nothing is guaranteed.