Whenever you’re feeling down in the dumps about some stocks, or fretting about the future of the economy … just read a promo ad from Louis Navellier. His love of fast-moving stocks is infectious, and it brings with it a simplicity that appeals to most of us: just buy the stocks that are going up and you’ll be rich and happy, right?
Well, I guess it works sometimes — he does have a decent long term record for some of his newsletters, his Blue Chip Growth has beaten the market over the last ten years while Emerging Growth has lagged over that time period. Those might be considered his “entry level” newsletters, though, priced at a few hundred bucks a year … his more expensive ones are not tracked by Hulbert — and it’s one of these pricier offerings, Quantum Growth ($5,000/yr), that is being hawked by Louis today as a way to “beat the market by $32 to $1.”
And no, I don’t know what that means mathematically — he says that he’s beaten the market by 32-to-1 over 12 years, though I don’t know if that means the last twelve years. If so, then the market has been roughly flat over that time period — if we go back 12 years from today the S&P is actually down a little bit. So I guess he could make this claim if his portfolio had returned 32% over 12 years, perhaps? Sounds less impressive that way, but I suppose it would still be “beating the market,” particularly if you ignore dividends. He doesn’t, by the way, claim that you would have beaten the market over this time period, just that his “proven stock picking system” had that impressive-sounding performance.
But anyway, I’ve gotten off track — what we’re interested in now is that Louis is teasing a specific stock that he thinks will double your money. Stop yawning! Just because he promises this exact same result for every single stock he teases doesn’t mean it won’t happen this time! Maybe.
“A Quick Look at Tonight’s Top Trade, and You’ll See Why I Can Guarantee We’ll Make You 10 TIMES Richer
“You see, just like Express-1 Expedited Solutions that just handed us a 90% profit in 11 weeks, this NEW TRADE is also riding the wave of corporate spending—and is making more money doing so with SIX TIMES greater earnings growth.
“The reason is simple: The company’s transaction technology gives it a virtual license to print money at the expense of its clients.
“What makes this stock a great trade is how the company’s technology has been built into the banking, retail, government and gaming sectors—banking millions of dollar annually of the backs of these private and public companies.
“So it’s no surprise this technology juggernaut’s stock price has jumped more than 491% over the past two years on 190% earnings growth or why we’re expecting a similar breakout when it reports earnings come August 1.
“Thanks to June’s market tumble, this small-cap stock is now trading at a bargain price. So we’re looking for a nice pop in price in short order….Are you getting our free Daily Update
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“From the technical and fundamental data we are seeing now, we are right at the tipping point of another breakout.
“Your quick action today will make sure you grab the next 30%, 40%, even 50% gain we have targeted here in short order. But hurry! This small-cap stock is going to move quickly.”
OK, so you can decide for yourself — is it a “small-cap” or a “technology juggernaut?” Can it be both? I dunno, but I can tell you that this stock is … TransAct Technologies (TACT)
Which is a very small company (about $100 million market cap) that makes transaction printers.
Exciting, right? They are “built in” to the government, retail and gaming sectors, at least to the extent that their little printer machines are built into transaction systems and slot machines. And they did report 190% earnings growth in the last quarter … and a stock price that at one point did jump more than 491% over roughly two years.
Though especially these days, when memories of the crash are growing a little dimmer, it’s worth remembering that you can sometimes get a better picture of a stock’s history if you dial the chart back by just a touch more than two years. Here’s TACT’s chart for the two years ending about six weeks ago, looks awesome!
And here’s the one for three years. Less awesome.
That’s not to say this stock has been worse than average, of course — lots of stocks fell by 75% or more in the crash, particularly little tiny stocks like this one — it’s just to give a little perspective on that claim that this one has already provided gains of 491% as it grew into a “juggernaut,” their history is far less linear if you go back a bit further.
This is how the company describes itself:
“… leader in developing and manufacturing market-specific printers for transaction-based industries. These industries include casino, gaming, lottery, banking, kiosk and point-of-sale. Each individual market has distinct, critical requirements for printing and the transaction is not complete until the receipt and/or ticket is produced. TransAct printers are designed from the ground up based on market specific requirements and are sold under the Ithaca(R) and Epic product brands. TransAct distributes its printers through OEMs, value-added resellers, selected distributors, and direct to end-users. TransAct has over two million printers installed around the world.”
And yes, they do report earnings on August 1. They have not been particularly forthcoming on guidance but have said that they expect 2011 to beat 2010, and this second quarter to beat the year-ago quarter (that’s from their latest quarterly release, when they reported that 190% year over year earnings growth number and beat estimates dramatically). Nothing catches the eye of Navellier’s quantitative system like earnings growth and a big “beat,” though, to be fair, there’s only one analyst covering this itty bitty stock.
TransAct has been winning new business over the past year for their printers in the banking and point-of-sale sectors, including some impressive sounding wins for JP Morgan Chase with bank teller printers, and for McDonald’s for some of their point of sale printers, but that has generally been a pretty small part of the business, and my impression is that they’re small fish in this field compared to their position in gaming machines. TransAct has overwhelmingly been dependent on lottery and casino gambling printers, particularly the printers that are built into slot machines, and they say they have 70% of the lottery machine market, (largely, it appears, through their partnership with GTECH/Lottomatica). As of the last quarter, gambling and lottery machines represented roughly 35% each of TACT’s revenue, and other point of sale equipment about 12%.
The other part of TransAct’s business, and it’s a nice high-margin segment, though smaller in size so far, is the consumables and service business — just like you spend far more on your inkjet cartridges and paper over the life of your desktop printer than you did on the printer itself, so do McDonald’s and Harrah’s and their ilk spend far more on the consumable products and service contracts over time.
So that’s who TransAct is, and what they do — the one analyst who follows the stock doesn’t think they’ll post anything like the 190% earnings growth they achieved in this last quarter, the estimate is that they’ll improve on last year’s earnings by just a penny in each quarter. Of course, that same analyst was also caught off guard by the last quarter and the company has been unspecific but positive in guidance, so there’s no particular reason to think that they’ll be right this time around. I assume the estimate is from the Roth Capital analyst, which has listed TACT consistently as a “Buy” or “Strong Buy” for close to ten years (though the price target has wavered considerably), but I haven’t actually seen the analyst report so I’m not sure.
The risk seems to be, as it is with many small Louis Navellier picks, that the current price is an overreaction to the most recent dramatic earnings growth, but that it might be expensive based on the potentially less dramatic earnings growth that will come in the next quarters — we’ve seen that before with several of his teaser picks that have reported massive outsize gains, especially when those dramatic jumps are from one-time events. The company is priced at a bit of a premium, with a trailing PE near 20, but certainly not as wildly expensive as some of the momentum growth stocks Navellier has teased us with in the past.
The earnings for their outsize first quarter seem to have been driven largely by the introduction of a new printer for GTECH that had huge sales in the lottery segment, but I have no idea whether that’s a quick product cycle or large order that has run its course, a sign of more potential growth to come, or something in between — sales growth in other segments was generally a more sedate 5-10% or so, and the earnings growth of 190% dramatically outpaced their 45% sales growth, so it wouldn’t be surprising if margins came back in after that kind of quick outperformance.
As a positive, they did also report a jump in their high margin consumables business — and that’s a business that you’d hope would grow very consistently now that they have a pretty large universe of installed equipment to potentially service (though it’s worth being careful — there’s no doubt that this high margin potential was also being touted five years ago).
So what do you think? Feel like investing in a tiny printer maker that depends on the increasing prevalence of automated lottery and gaming machines? Let us know with a comment below.
And if you’ve ever had the pleasure of subscribing to Navellier’s Quantum Growth, now’s your chance to tell it like it is — click here to submit a brief review of this newsletter over at Stock Gumshoe Reviews. Thanks!