Online gambling slowdown in sight?

News on 5 May 2009

The publication Motley Fool, which has consistently punted online gambling stocks like GigaMedia, published an interesting perspective on the online gambling industry this week, quoting from the analyst Brean Murray.
Brean Murray has a solid reputation for its calls, and according to Motley, outperforms 94 percent of all the investors tracked on it’s CAPS. On average, any given pick Brean Murray makes goes on to outperform the S&P 500 by more than five full percentage points, too.
According to Brean Murray, its time to stop buying GigaMedia, and the reasoning comes down to two key points:
First, the analyst sees online gambling revenue “moderating” in the second quarter of 2009, the rest of 2009, and all of 2010, given the challenging traffic trends.
Second, Brean believes that “potential severance payments” will cut into GAAP earnings this year.
Certainly concerning GigaMedia, Motley Fool disagrees, pointing out that it sold for just eight times earnings this week, and barely 10 times free cash flow that has (or had, up until the recession hit) been growing by leaps and bounds.
“Most analysts expect GigaMedia to resume growing its profits soon, and indeed to achieve 20 percent annual growth over the next five years,” the publication observes. “Even if we presume that Brean Murray’s concerns will come to pass, the analyst still expects GigaMedia to earn perhaps $0.60 per share in fiscal 2010 – which means the company is selling for about 10 times forward earnings.”

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