Investors in any industry seek to read between the lines written by those in the know, about stocks that take a dip, especially when the companies look strong or lead their field like International Game Technology (IGT). When the investor owns the stock he has two options: sell or hold. If he keeps faith in the stock, he will hold, but in these pragmatic days, faith is surely a short route to the poor house, and holding the stock will depend on what the future looks like for the company.

For investors looking for a good punt, or for those looking for a stock to bring in secure returns during the next three years or more, quality shares trading at half the price of last year’s have only one option, and this is to buy. IGT’s stock is trading at around US$26 from last year’s highs around US$47, some 46% below. However, is this enough to rush out and buy the stock? Or do we need to look at the form, to see if the punt is worth the risk? In his piece “IGT is a winner” published in The Motley Fool site, Jeff Hwang, an IGT stockholder reckons that the stock “bounced, in my opinion, because IGT's shares are cheap for a company of its stature. The stock is priced at 20 times fiscal 2005 earnings, and it gets cheaper the further you look out.

“IGT saw net income in the second quarter fall 24% to $93.9 million, or $0.26 per share, year over year. That figure was short of the analysts' $0.31 estimate, though the company did take $0.04 per share in charges, the bulk of it on some "technically obsolete" machines under its gaming operations.

“Overall revenues were down 13% to $551 million compared with the same period last year. While gaming operations alone grew 9% to $299 million, product sales dropped 30% to $252 million, and units shipped were cut in half from 45,400 units in last year's second quarter to 22,600 units now. As a result of the loss of scale, gross margins on slot sales fell from 55% to 53%.

“The key here is timing. Slot sales had previously accelerated because of the rapid industrywide replacement of old slots with new coinless ticket-in/ticket-out (TITO)-capable machines. But with a slowdown in replacement sales and the wait for anticipated sales to materialize in new gaming markets in Pennsylvania, the UK, and tribal-owned casinos in California, product sales have hit a lull.”

Hwang certainly knows his business, and holds the IGT stock based on his knowledge of the industry and of the company’s outlook and, being aware that current numbers are not impressive, he sticks to his guns and closes with a strong: “I believe that IGT's stock presents an opportunity to own what I consider a tip-top player in a growth industry at an attractive price.”

Making his point in his informative piece, Hwang tell us that the IGT trading lull is temporary, “and the sales of new slots will (his italics) come in the UK, Macau, Pennsylvania, Florida, and California, and as new states follow suit.” Indeed, the sales will come, and the company’s European office is getting ready for increased sales opportunities in that region.

During my visit to Amsterdam earlier in the month, Kurt Quartier, Vice President for IGT Europe was confident of sales opportunities in Italy as the gaming legislation there moves forward. Also Eastern Europe and all the countries that have evolved from the former Soviet Union, including the pick of the bunch the Russian Federation, where they will have a presence in more than three gaming events this year, including two trade shows. If you read between the lines, it’s just a question of the lull before the sales storm. (E-04.25.05)

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