2 Growth Winners to Buy

05/28/2013 7:00 am EST


James Oberweis

President, Oberweis Asset Management, Inc.

Although they herald from two separate industries, these companies are growing at double-digit rates, says Jim Oberweis of the Oberweis Report.

Multimedia Games (MGAM) designs, manufactures, and supplies innovative standalone and networked gaming systems to Native American and commercial casino operators in North America, domestic and selected international lottery operators, and charity and commercial bingo gaming facility operators.

The company offers standalone gaming machines and server-based centrally-linked products and systems. It derives the majority of its gaming revenues from participation, development, and placement fee agreements, all of which operate on a participation, or revenue share, basis.

Multimedia Games enters into development and placement fee agreements to provide financing for new gaming facilities or for the expansion of existing facilities. Under these agreements, the company places player terminals and systems, as well as its proprietary and other licensed game content at a customer's facility in return for a share of the revenues from these terminals.

Recently, the company received approval to begin selling games into the Nevada gaming market, and we expect Multimedia will obtain approval to sell in New Jersey, Pennsylvania, and Illinois over the next 24 months. Multimedia Games also generates revenues by providing the central determinant system operated by the New York State Division of the Lottery.

In the company's latest reported first quarter, sales increased approximately 27% to $44.3 million from $34.8 million in the first quarter of last year. Multimedia Games reported earnings per share of 24 cents in the latest reported first quarter, versus 14 cents in the same quarter of last year. The company expects a 36% to 40% tax rate in FY13 versus a rate of 0% in FY12.

Meanwhile, RigNet (RNET) provides managed communication services to the oil and gas industry. RigNet provides solutions ranging from fully-managed voice and data networks to more advanced applications that include video conferencing and real-time data services to remote sites in over 30 countries on six continents, effectively spanning the drilling and production industry.

RigNet says it has grown by taking market share from its principle competitor, Harris CapRock (HRS). On July 5, 2012, RigNet bought Scottish Nessco Group Holdings for $49 million, providing a key entry into the offshore production vertical. The company is benefitting both from increased penetration at existing customers and growth in rigs.

Revenues grew at a compound annual growth rate of 19% from 2007-2012. In 2012, in part due to the Nessco acquisition, revenues grew 48% and earnings grew 33%. In the fourth quarter of 2012, revenues grew 65% to $49.3 million versus $30 million in 4Q 2011. EPS grew 67% to 20 cents, versus 12 cents in the same quarter of the prior year.

The shares of both companies may be appropriate for risk-oriented investors.

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