The Stars Group Inc (TSGI.TO)

(A Pairs trade. Long NYX and Short Amaya.) Currently under investigation by the Québec securities commission for insider trading, and is attractive as a Short from that perspective. Also, thinks analysts are treating their entry into the US market as a slam dunk, and he doesn’t agree.

Whenever investing in the gaming industry, there has to be questions right away. This company has done very well. Regulators are looking at it quite closely. There are certain sectors that are gamier than others, and this is definitely one. He would be wary that other regulators might look at it, and certain findings might hurt the stock. If you own, consider when you should sell. Not his kind of company.

(A Top Pick July 29/14. Up 5.23%.) They really have to get rid of the insider trading investigation. It has been a long, long time coming. The company has done a very, very good job. Good financing, good acquisitions, good dispositions. This has become the largest online gaming company globally. Management still owns a big, big chunk of stock. He still likes this and it is still in his model portfolio.

There is a lot of controversy. When you have these sorts of stories that have a lot of negative news bouncing around, and you don’t know what the answer is, it would be a worry. The valuation is not compelling enough for him to get involved.

Had a pretty monster move in 2014, but since that time it has been consolidating in a widely swinging range. Often what happens with these kinds of moves is that there will be a breakout to one side or the other. In this kind of a situation, you buy it at the bottom of the range and consider selling at the top of the range.

This is a name he is very leery of. There has been a lot of corporate governmence surrounding this name. Made a recent acquisition of Poker Stars. They have 60% market share. However, there has been a lot of issues surrounding the acquisition. There has been a lot of issues of the character of the companies involved. He is shorting this stock, but prefers other names in the gaming area. (NYX-V)

Looks like a lot of the wrongdoing or acquisitions were less on the company, but more on their advisors. However, it is still going to drag this company in. Has owned this in the past, but prefers some of the other gaming companies. They are getting into the casinos and sports book market, which are actually bigger than the poker market. It will be a real testament as to what management can do as far as growing a stellar brand into those other areas. If they are successful, the stock price will probably be many multiples higher.

Recently sold his small position. With all the governance issues around the stock is not worth it. ROE has not turned out to be as high as what he was looking for. He would rather put his money elsewhere.

Sold his holdings. He kind of got fed up with all the investigations going on.

The acquisition of Poker Stars was hugely accretive and has made them the #1 player globally. If the cash flow comes through and they are able to clear some of the red flags around the company, the stock should do well. He prefers smaller names which have a little bit more torque.

He is more wary of gaming companies. If someone is willing to buy into this company they have to be ready for a major shock from a regulator.

Chart shows a pretty good support around the mid-$20 level. It looks like it is making a small pennant formation. It tested the low that it made in early January and tested it again in April.

He likes it. He looks at it on a daily basis. Acquisitions have been accretive to earnings. They are looking at a European acquisition now. With each acquisition they have done you have to give them more and more credit. No one has ever been charged from the insider trading issue. He thinks there is very good potential.

The investigation in Québec has not been completed. His model shows earnings being shaped down by about 6% in the last 90 days, however earnings are expected to grow by 76% in 2015. That gives an 18X PE multiple. Earnings are forecast to grow by 40% in 2016, giving you a 13X PE multiple. If those earnings can be hit, it would suggest that the stock looks to be attractive.

Has a really small position in this. With all the stuff that is coming out with the different acquisitions, some of the issues on investigations that have been in the press which may or may not affect the company, he is not comfortable recommending the stock. He needs to see a lot of the stuff get cleaned up.