Table Trac (TBTC) sells systems and technical support to casinos; its open architecture provides operators with a scalable and flexible system that can interconnect with most third-party software or hardware, explains small cap expert Faris Sleem, editor of The Bowser Report.
The system adds functionality to related casino system modules for guest rewards and loyalty clubs, marketing analysis, guest service, promotions, administration/management, vault/cage management and audit/accounting tasks.
The company also offers Casino Trac, a casino management system. In addition, it provides system sales services comprised of installation, custom casino system configuration, training and technical support services to casinos. TBTC was founded in 1995 and currently has 24 employees.
Table Trac’s revenue and profits have grown at a steady rate over the past few years. In the most recent quarter, revenues grew 27% year-over-year, and net income grew to $7,960 from a net loss There are two significant contributing factors to the growth in operating income:
• Revenue growth: Sales have grown at an average rate of 26% annually.
• New installations: Gross margins increased 43% in 1QFY19 due to the company’s Australian reseller installing eight new systems. This immediately improved the bottom line.
Table Trac’s financial growth resembles that of Galaxy Gaming (GLXZ), which has performed well since our recommendation in May 2017. Although GLXZ has higher revenues, it has a slower annual growth rate of 17%.
Both companies show similar growth and great stock performance but vary in their competitive advantages. Considering TBTC has just recently improved its margins, it seems that it’s in an earlier stage of capturing market share.
Table Trac’s balance sheet shows an asset-rich company with plenty of cash on hand. Its current ratio of 6.4 indicates a high level of liquidity and lowers risk for long-term investors.
The firm has a slight amount of long-term debt ($67,000), which is less than 10% of sales. TBTC trades at high price relative to its book value, but it’s in line with the industry average. In fact, its price/book ratio of 2.8 is substantially lower than that of GLXZ at 8.2.
Even though the company doesn’t have extremely high sales, its value creation and improvement in margins have helped build a strong fundamental foundation. Its price/earnings ratio of 15 and price/sales ratio of 1.3 are both favorable relative to the industry averages, spelling value for investors.
While Table Trac's share structure may seem like it adds risk, it also indicates that the stock has very high potential. With just 4.5 million shares outstanding and a whopping 47% of insider ownership, there are only 2.5 million shares available to the public (float).
Although this makes shares more volatile, it also adds the potential for a dramatic increase in market value if institutional investors stepped in. It’s bold to assume that institutions are interested in OTC-listed stocks, but its low liquidity risk and consistent revenues overshadow the risk of low trading volume.
Part of the reason insiders own such a large stake is because Hoehne owns 1.2 million shares. In addition to his large position, insiders have accumulated 14,000 shares within the past twelve months without any sales.
Table Trac has been on our radar for quite some time, but has just recently achieved the financial consistency that we like to see in our recommendations. The company’s low prices and high-quality systems provide it with an edge in a competitive industry.
The stock has outstanding contract momentum, and it shows with the sudden increase in operating income and profits. We believe that this is a moderate risk/high reward stock that is in the early stages of capturing market share.
