The Stars Group Inc (TSGI.TO)

There is huge volatility in this. His model price is $22.32, a 15% upside from the current price. He would love to get this on a pullback to $16.

Did a reverse takeover of one of the biggest online gaming companies. With that they took on some baggage of legal troubles of the past company. There were also some headline issues of insider trading allegations by the Québec financial authorities. The business has good value. He would be a little leery until you see that management is focused and has its attention on running the company, rather than fighting other things. He is on the fence on this, but is a little concerned.

The stock is cheap. There appears to be a breakthrough in California in terms of Internet gambling. At worse we may get a takeover bid for the company. The $21 takeout value is about book value. It is a decent buy right now no matter what.

Online gambling. CEO has indicated he wants to take the company private at $21. A lot of people are looking at the $21 private offering as a ceiling, but he actually thinks it is a floor. Any time this company is trading below $21, it is time to consider adding to it.

There are rumours that a bid will be coming at $21, and he thinks this will go through. Any profits you have, he would be moving into Intertain (IT-T) or NYX (NYX-X) or on this, hoping that the $21 bid is not enough and will get the ball rolling for the board to go shop the company. There are way better names than this.

Analysts are forecasting earnings growing to $2.33, up 61% from last year. PE is 8 times.

Has been in the news recently because management talked about taking the company private at $21 cash. He had been short this for most of last year. (A hedge for a long position in another online gaming company.) Just covered his Short position. Has always been skeptical of management and the difficulty they are going to have in getting into the US market. If this doesn’t go private, he might put his Short position back on.

Generally doesn’t like this space. It has to do with the backdrop and the lack of transparency. There is a lot of shadowy stuff going on with all of these companies, and things are changing all the time. He is just not interested in playing in this space anymore.

Now that they have had a poor quarter, what you are going to need is for them to have a strong quarter. A lot of people bought the stock at higher prices after the Poker Stars acquisition; and is probably being hit with tax loss selling. You need to see is some sort of stability with the stock price after the tax loss selling. The 2^nd thing will be when they come out with their next set of quarterly results, and if numbers have improved and are moving back in the right direction. At that point, you will probably start to see the share price returning back to a growth profile. An interesting business with a huge market out there. They are trying to transition their business from straight poker into more casino and sports book, and it is going to be a challenge over the next few years as to how they maintain the poker business, especially with the regulatory environment, and at the same time transition into that casino and sports book business. Wait and see the numbers, and if they look to be ramping up again, that will probably be a good entry point.

It kind of shocked the street a couple of weeks ago with their quarter and their quarterly forecast. Stock took a very, very big hit and lost $2 billion in market value, for a quarter that was really great, but not worth a $2 billion haircut. The CEO has now started to buy, and you have a situation where the valuation has adjusted. Part of the issue is the US$. They have a big, big business in Europe, and because the US$ has been so strong, a lot of their poker players just decided to back off. That is largely beyond the company’s control. The company has become a conglomerate and has grown to be the largest globally. Have raised money very, very well and have made acquisitions, and owners still own about 18%-19% of the company. The opportunity in the US is still very, very big. New Jersey is the only state that has really got blanket gambling procedures in place right now. As the US market develops, they will be there. A nice, solid company.

The space is getting very large. Stocks correct for one reason: They are getting expensive. This was a market darling and did well and then it sold off. Be careful about insiders buying. You don’t know what his average cost is. There is a lot of regulatory risk here. State after state are banning fantasy gambling because they want to tax it. Watch the multiple. It could get crushed pretty easily.

Has never held this, but it ranks very highly in his quantitative model. He just couldn’t get past the valuation. If you own, he would consider selling it. Revenue and earnings guidance was down quite a bit, but even more telling was the volume on the shares. There were a lot of large institutional investors that dumped the shares yesterday, and there may be more to come.

The major difficulty with social gambling stocks is that there are now so many of them.

Online gaming. Americans are absolutely death on online gaming, except that it is such a darn good source of tax revenue. New Jersey decided to undertake a major, major investigation, and at the end they gave them a clean bill of health. New York would also love to get into this market. This could be a really good news story for the next year or 2. Balance sheet is good. He expects the Québec inquiry will find nothing.

They have a continuing investigation going on with the Quebec securities commission. That never bodes well. Not enamoured with the gaming space. Their debt load is absolutely enormous and scary. He wouldn’t go near this.