Multimedia Games (MGAM): Zacks Rank Buy
Multimedia Games (MGAM) has seen limited analyst coverage in the past, but a recent strong beat has helped make the stock a Zacks #1 Rank (Strong Buy).
Company Description
Multimedia Games Holding Company engages in the design, manufacture, distribution, and maintenance of gaming machines, video lottery terminals, and associated systems and equipment. The company provides a range of networked gaming systems that control and operate Class II gaming machines, video lottery terminals, and bingo terminals at Native American and commercial gaming facilities. Multimedia Games Holding Company, Inc. was founded in 1991 and is based in Austin, Texas.
Five Straight Beats
Multimedia Games has recorded five straight beats of the Zacks Consensus Estimate, with the average surprise coming in 210% ahead of expectations. The September 2011 quarter saw the largest beat, coming in at $0.11 per share or approximately 450% ahead of the Zacks Consensus Estimate of $0.02.
Wall Street, for the most part has not taken notice of the massive positive earnings surprises that Multimedia Games has been posting. With the exception of the most recent quarter, the stock has only moved by more than 7% one time following earnings. Following a 300% positive earnings surprise, the stock moved 7.8% following the June 2011 earnings release.
MGAM Most Recent Reported Earnings
On February 1, 2012 the company reported revenue of $35 million, roughly $4 million ahead of the Zacks Consensus estimate and up from $29 million reported in year ago quarter. In addition, earnings per share came in at $0.14, $0.10 higher than the Zacks Consensus Estimate of $0.04. The beat of 250% was the smaller than the two previous quarters, but the stock moved higher by 39%.
Valuations
The valuation picture for Multimedia Games is slightly higher than the industry average for most every metric that aggressive growth investors will look at. The trailing and forward PE is slightly above the industry average of 23x. The price to book multiple of 2.5x is higher than the industry average of 1.5x and the price to sales multiple of 2.3x is also higher than the 1.5x industry average multiple. For the most part, the valuation is mostly in line with the industry average despite the string of large positive earnings surprises.
The Chart
The price and consensus chart shows that the stock has trailed earnings estimate expectations throughout most of 2011. That all changed with the most recent earnings report which saw a 39% increase in the stock price. Earnings expectations have increased following the report, but have yet to catch up to the stock price. Multimedia Games is a Zacks #1 Rank (Strong Buy).
Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service
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