Scientific Games (SGMS) In A Perilous Reversal

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Scientific Games ( SGMS) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Scientific Games as such a stock due to the following factors:

  • SGMS has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $21.4 million.
  • SGMS has traded 64,870 shares today.
  • SGMS is down 3.2% today.
  • SGMS was up 8% yesterday.

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More details on SGMS:

Scientific Games Corporation provides technology-based products and services, and associated content for gaming and lottery markets worldwide. The company operates in three segments: Instant Products, Lottery Systems, and Gaming. Currently there are 4 analysts that rate Scientific Games a buy, 1 analyst rates it a sell, and 1 rates it a hold.

The average volume for Scientific Games has been 1.4 million shares per day over the past 30 days. Scientific Games has a market cap of $717.0 million and is part of the services sector and leisure industry. The stock has a beta of 1.96 and a short float of 10.3% with 2.51 days to cover. Shares are down 46% year-to-date as of the close of trading on Friday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Scientific Games as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally high debt management risk and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 458.0% when compared to the same quarter one year ago, falling from -$12.98 million to -$72.40 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, SCIENTIFIC GAMES CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $23.80 million or 49.14% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • Although SGMS's debt-to-equity ratio of 14.27 is very high, it is currently less than that of the industry average. Even though the debt-to-equity ratio is weak, SGMS's quick ratio is somewhat strong at 1.41, demonstrating the ability to handle short-term liquidity needs.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 43.76%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 514.28% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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