Continuation from yesterday……As we begin to analyze the company in the 1990’s we immediately realize just how out of shape and dysfunctional the company was at the time. On many different levels. For instance, the company was involved in so many different businesses or lines of business that it would have been virtually impossible for anyone to truly understand their operations. From developing slot machines and gaming systems to operating river boat casinos, from international partnerships to running their own slot machine route operations. And the list goes on. In short, it would have been impossible to fully comprehend, let alone analyze the company from the fundamental perspective alone.
Part of the problem stemmed from the company’s mismanagement in the past and number of acquisitions/takeovers the company went through in the 1990’s. So much so that by 2000 Bally’s stock was on the brink of being delisted from Nasdaq. Hence the low price. Yet, by the end of 2002 the company was earning record revenues and profits and was even able to move from the Nasdaq to the New York Stock Exchange.
What had caused such an improvement in operations?
A turnaround of sorts. The company began to consolidate its business lines and divest non-core assets. Selling a number of properties and businesses in the process, raising additional cash and paying off debt. Further, the company refocused on technology and slot machine, introducing a number of popular products throughout 2000’s. Today, Bally Technologies has a much simpler structure and business. Deriving all of their revenue from just three lines of business, gaming equipment (34%), gaming operations (41%) and systems (25%).
If we analyze the company during the 1999-2000 period, unfortunately, we would have been unable to predict that the company would A. Begin its turnaround efforts B. Start consolidating and selling off assets and C. Be successful. In fact, after pouring over company’s records and financial statements during that time I have yet to find one management discussion alluding to the fact the company will attempt a turnaround.
In other words, it would have been impossible to predict the company’s turnaround from the fundamental perspective alone for the following reasons.
- The company’s structure was too complicated.
- Financial mismanagement and a heavy debt load
- The company was on the verge of a financial collapse.
- No discussion of any turnaround attempt by the company’s management.
- No discussion of consolidation and asset divestiture.
The question becomes, would investors be able to forecast such changes on their own?
Absolutely NOT.
The fundamental developments above could not have been anticipated nor predicted. Particularly when the management of the company did not talk about them in advance. And while we could have assumed the company would have instituted additional turnaround steps, we would have no way of knowing if they would actually work and to what an extent they would go. Forcing us to make an investment decision on hope alone. An unacceptable way to approach any sort of an investment decision. Perhaps technical analysis can offer us a better answer.
To Be Continued Tomorrow……
