Multimedia Games (NASDAQ: MGAM) Riding a Wave of More Consumer Disposable Income

Multimedia Games (NASDAQ: MGAM) Riding a Wave of More Consumer Disposable Income

Gambling is a cyclical industry that depends on the strength of the economy. When consumers are struggling to pay the bills and keep food on the table, they don’t have the spare money for Vegas vacations or even trips to the local casino. As a result, the recent American recession was bad news for companies in the gambling industry.

Multimedia Games (NASDAQ: MGAM), a designer and manufacturer of gaming technology for casinos around the World, was hit badly from this crash. The company saw its share price fall by over 80% from 2007 to 2009 as casinos stopped investing in new equipment. This trend carried across the industry as the shares of major casino firms like Las Vegas Sands Corp (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN) took similar nosedives.

Things finally look like their turning around for the gaming industry. Multimedia Games has seen its revenue grow by 40% since 2010, earning total revenue of about $156 million in 2012. This beat its 2012 revenue expectations by about 8%. Most of this success came from growth in its domestic sales, which are up about 24% since 2011.

These improvements have not gone unnoticed by investors. Multimedia Games has seen its share price jump up from a low of around $2 to its current listing at just over $14 a share. As the American economy continues to improve, this should translate to even better performance from Multimedia Games.

How does Multimedia Games compare to its main competitors in the gaming technology industry, Bally Technologies (NYSE: BYI) and International Game Technology (NYSE: IGT)? The main difference is that Bally’s and IGT are both huge, established companies whereas Multimedia Games is a relatively small, new company. Bally’s and IGT have market caps of several billion whereas Multimedia Games has a comparatively small $415 million market cap.

This means Multimedia Games has more room to grow. Since its launch in 1991, Multimedia Games has expanded into different states and countries. While it definitely has a larger market presence today, there are still many markets that don’t have Multimedia Games technology. Just by continuing to expand into new markets, Multimedia can offer steady growth. The more established competitors don’t have this option.

While the future outlook for Multimedia Games seems glowing should the economy stay strong, what if the economy tanks again? The management at Multimedia Games seems to have learned from the past recession that it needs a buffer against risk. The company has used its higher revenues to grow its cash reserves to $74 million. At the same time, it has kept its total debt to a comparatively manageable $33 million. Should the economy hit a rough patch, Multimedia Games currently has enough of a cushion to get through it.

With increasing revenues, plenty of room for growth, and a low share price compared to its competitors, Multimedia Games is a great stock pick for investors expecting the economy and the casino industry to continue their upward trend. Your odds with Multimedia Games are certainly a lot better than at the craps or blackjack table.