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Amaya has profited from New Jersey legalizing online gambling: Out of the seven casinos online, Amaya is partnered with six of them.

Getty Images/iStockphoto

Amaya Gaming Group Inc.'s stock isn't quite the gamble it was just over a month ago.

The Pointe-Claire, Que.-based company, which serves both the online and physical gambling industries, has seen its stock battered after a recent earnings miss. But the company's long-term outlook was largely unaffected, making the stock priced-to-buy for investors who continue to like Amaya's odds.

"They reported a weak quarter, but so did every gambling hardware company, due to weather," said James Hodgins, chief investment officer at Curvature Hedge Strategies.

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Over the longer term, Amaya looks poised to generate substantial growth through its services for casinos, while capitalizing on the increased popularity and adoption of online gambling in the United States.

It was just a few years ago that Amaya was a little-known small cap with very little revenue and some decent technology, said Peter Hodson, head of research at 5i Research, an independent stock analysis firm.

Then Amaya pulled off a series of acquisitions, buying up once high-flying Internet gambling companies such as casino gambling developer Cryptologic Ltd. and gambling software provider Chartwell Technology Inc. Those companies had ridden the online poker and gaming craze, which collapsed when U.S. Congress banned online gambling in 2006.

Dozens of companies vanished, Mr. Hodson said. "Then lo and behold, the U.S. [later] decides to legalize Internet gambling in some states."

In November, 2013, virtual casinos went live in New Jersey. Of the seven casinos now online, Amaya is partnered with six of them, "which solidifies its presence within the U.S. online gambling market," Ralph Garcea, an analyst with Global Maxfin Capital, said in a recent note.

"That side of it is still growing, and steadily," Curvature's Mr. Hodgins said. "It could grow rapidly if you see some of the bigger states like California and New York legalize online gaming."

Amaya's biggest acquisition came in September, 2012, when the company announced the acquisition of casino supplier Cadillac Jack – a $177-million acquisition that more than doubled Amaya's size.

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That deal propelled the stock from about $3.50 to nearly $7 on the TSX Venture Exchange. After moving to the TSX last October, Amaya emerged to become one of Canada's bigger tech plays with a share price peak of $8.99 last month and a market cap of more than $800-million.

"There was a huge interest in this stock because of the online gaming potential," said Mr. Hodson of 5i Research. "And maybe it got a little ahead of itself."

Amaya's fourth-quarter results fell short of consensus on both revenue and earnings, posting earnings per share of 6 cents compared to the average estimate of 9 cents. Investors bailed.

By last Wednesday, the stock had fallen by 35 per cent from its March peak. It has recovered some of those losses since, but at Thursday's closing price of $6.61, is still down by 27 per cent its record high.

According to Mr. Hodson, investors got overly excited about increases in online gambling revenues in New Jersey. But Amaya's growth is actually primarily driven by its "land-based" business – supplying machines and the software that runs them.

The online market could be seen as a bonus, potentially adding $2 to $3 to Amaya's stock price over the next three to five years, said Mr. Garcea, who has a "strong buy" rating and an $11 target on the shares. Of the nine analysts covering Amaya's stock, eight rate it a "buy" at an average share price target of $9.58.

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Another potential bump could come from the company adding to its record of strategic acquisitions, especially considering it had more than $90-million in cash and equivalents as of the end of 2013. "They've got the cash on the balance sheet and access to debt capital, to buy something pretty large and accretive," Mr. Hodgins said.

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