TIMING & MATHEMATICAL ANALYSIS:
After going public in 1982 at around $20 a share (split adjusted) the company’s stock price has failed to follow any clearly identifiable cyclical or structural frameworks associated with it. While the stock appears to move in accordance to an eight year cycle, bottom-to-bottom, this cycle is questionable at best. If anything, the stock appears to move inverse to the overall market about 50% of the time.
For instance, Bally’s all time low in May of 2000 had occurred just a few weeks after the Nasdaq set its blow off top and started to collapse. What’s more, while the overall market went through a 2.5 year bear market, setting a secondary bottom in March of 2003, that was the exact time of Bally’s high. And while the overall stock market surged higher between 2003 and 2005, the company’s stock price proceeded to decline by over 60%. Only to realign with the overall stock market thereafter.
In short, just as with our Best Buy analysis earlier, Bally’s stock price did not have a cyclical nor timing structure associated with it. Even following the overall structure of the market would have proven to be futile in this case. Any investor who would have been familiar with the overall structure of the market and the topping of the 18 year cycle in 2000 (1982-2000 bull market) would have never taken a position in Bally’s stock in the early 2000. Or 99% of other stocks for that matter. Let alone a stock of the company that was on the verge of a financial collapse and a delisting.
As mentioned earlier, such stocks tend to oscillate on their own accord and without as much of a hint as to what the future holds. It would not be at all inappropriate to file such stocks under a “Wild Animal” category and forget about them. Particularly when the fundamental and the technical analysis results had failed to yield anything worthwhile. Based on my personal experience, it is best to steer clear of such stocks.
CONCLUSION:
Bally Technologies Inc, gave us no warning or evidence in 1999 or 2000 that it was about to stage a massive 8,000% rally over a 14 year period of time. In fact, all of our analytical metrics have failed in predicting the rise.
Sometimes it is just as important to know when it is time to take a position as it is when it is time to walk away. Bally Technologies presents us with a clear cut case as to why we should have walked away, even though the stock was about to stage a massive rally.
From the fundamental perspective alone, we would have been unable to determine if the company was about to stage a successful turnaround campaign or fall into bankruptcy. The management wasn’t talking, the company’s operations at the time were beyond complex, the stock was about to get delisted from the Nasdaq and there were no clear signs that things were about to improve. Certainly, there were no signs that the company was about to start a major consolidation/divestiture drive.
Our technical and mathematical analysis did not fare much better. Both have failed to predict an upcoming surge in the share price. While our technical analysis did suggest a possible entry point in March of 2001 at $3 a share, when the stock price broke above its previous high, neither the fundamental nor the mathematical side of the analysis would warrant a position.
In conclusion, even thought Bally Technologies’ stock price went on to gain 8,000% between 2000 and today, there was no prudent way to take a position in the stock in either 1999 or 2000. By the time the fundamental picture was starting to clear up, the stock price had already surged to $20-30 a share. In other words, it would have been impossible to predict this stock rise.
Final Prescription: Walk Away ….To Be Continued Tomorrow
