Bally Technologies (
),
a Las Vegas based manufacturer of slot and pinball machines, is set to report earnings next week, and with that in mind, we decided to take a closer look.
Over the past year, BYI has traded as low as $13.33 and as high as $38.85. Embedded in every stock's trading price is a set of expectations that the company must deliver to be considered fairly valued. By using AFG's Value Expectations interface, we can see exactly how Bally must perform to justify their current trading price.
Typically, we assume 3-year median levels for Sales Growth, EBITDA Margins, and Asset Turns as our starting point in identifying the imbedded expectations in a stock. With BYI, we have an example of a company where the profitability has changed drastically over the last three years, compelling us to use an EBITDA Margin that better matches investor expectations for our five year forecast. We will assume 33.0% EBITDA Margins and 0.90 Asset Turns in our analysis.
On November 20th, 2008, Bally Tech’s stock closed at a low of $13.33. The implied Sales Growth for BYI at that time was a staggering low -17.46% (Using our updated EBITDA Margins and Asset Turns.)
Last Tuesday (August 4th, 2009,) Bally Technologies was trading at $38.85, their highest trading price since 2007.
