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Five tips to find (and keep) the big winners
Category :- Investments

Author :- Peter Hodson 
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Posted on August 5, 2014, 8:48 pm
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This piece was initially posted on the Finanical Post and can be found here.

Amaya Gaming Group Inc.'s giant US$4.9-billion acquisition of Rational Group, the parent of online gaming sites Power Stars and Full Tilt Poker will turn it into a US$6-billion company. Less than two years ago, though, Amaya was worth just US$125-million.

We started covering the stock at $2.30 in January 2012, and this past week it traded above $19 per share. As part of the recent acquisition, Blackstone Group and others are subscribing at $20 per share. Less than a year ago, Amaya did a share financing at $6.25 per share.

Obviously, this sort of huge stock gain (up 1,650% since mid-2010) attracts attention. Investors who missed Amaya’s gain often ask themselves: How do I find the next one?

That is a difficult task, but here are five lessons we have learned from Amaya’s meteoric rise. Maybe these lessons can apply to other potential big winners.

Play the long game

Amaya’s shares in early April dropped sharply after it missed quarterly earnings estimates. Investors sold the shares down to $5.81. Those investors, too focused on one quarter, missed out on tripling their money in less than three months.

Lesson learned: Good companies focus on the long term. If a company is still growing (as Amaya was in April), don’t panic and sell because of the results during just one 90-day period.

Management is key

David Baazov, Amaya's chief executive, owns 24.6 million shares of his company. He has sold very little. He and his team had a plan to grow into the gaming market, and have stayed focused on it. The team knows its market and — perhaps more importantly — the regulatory process.

Amaya first made progress and learned from its gaming businesses in emerging markets, and then used that expertise to break into North America. Now, it has global ambitions.

Financing growth is critical

Some investors really took notice of Amaya in 2012 when it managed to do an equity financing of $104-million at a premium to its share price. At the time, it was still trading on the Venture Exchange, and the huge deal showed the company knew how to sell its story to investors and had serious backing from underwriters.

In its most recent massive deal, Amaya secured huge preferred share and common equity commitments upfront to ensure it could make a cash bid for Rational.

A good acquirer is a good acquirer

Prior to the recent deal, Amaya acquired several companies, including Chartwell Technologies, Cryptologic and then (the much bigger) Cadillac Jack. Each acquisition added strategic products and customers, and each created lots of shareholder value.

Investors are hoping the new acquisition does the same, only on a much bigger scale.

Keep an eye on the blue sky

Amaya, because of its ability to navigate the gaming regulatory landscape, was seen as one company that would massively benefit if the U.S. online gaming market opened up.

Investors bought into the future, and were able to envision potentially huge revenue and earnings down the road. This made Amaya shares seem expensive at many points during the company’s existence.

But these investors have been rewarded. Amaya is now present in three U.S. states and recently indicated it hopes to knock off the other states "one by one."

For those lucky enough to own Amaya, we think there is still upside potential, especially once the Rational deal actually closes. For those that missed this one, maybe the five lessons above will help you in the search for the next one.

For interested readers, more on the Amaya deal can be found here.

Source: http://www.5iresearch.ca/blog/five-tips-to-find-and-keep-the-big-winners

Comments : More information can be found at www.5iresearch.ca. 5i Research an independent stock research company.
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