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Time to go all-in?
Now that many investors have folded their shares of WPT Enterprises, it might be a good time to bet.
October 5, 2005: 4:18 PM EDT
By Paul R. La Monica, CNN/Money senior writer
A declining chip count: Shares of WPT enjoyed a hot streak earlier this year but have cooled off in recent months.
A declining chip count: Shares of WPT enjoyed a hot streak earlier this year but have cooled off in recent months.
Will the online poker business be a royal flush for WPT Enterprises?
Will the online poker business be a royal flush for WPT Enterprises?
INVESTOR RESEARCH CENTER INVESTOR RESEARCH CENTER upgrades & downgrades earnings & warnings public offerings INVESTOR RESEARCH CENTER INVESTOR RESEARCH CENTER

NEW YORK (CNN/Money) Investors in WPT Enterprises, operator of the popular "World Poker Tour" television series on the Travel Channel, have to be wondering if they've been dealt a losing hand.

Shares of the company surged earlier this spring due to optimism about prospects for its new online poker business. (For more about that, click here.)

The stock moved as high as $29.50 in July following speculation about a possible takeover by a group of investors led by legendary poker player Doyle Brunson.

But the buyout offer turned out to be a bluff a mere three days after WPT said it received the unsolicited bid, the company then announced that it was "unable" to substantiate the offer.

The collapse of the takeover and a disappointing second-quarter report caused many WPT (Research) investors to bail. Shares have since plunged to about $8, the offering price for the company when it went public in August 2004.

With that in mind, is now a good time for investors to take a gamble on the stock? Some Wall Street analysts think so.

There's value in these cards

David Bain, an analyst with Merriman Curhan Ford & Co., said that there was probably too much hype in the stock shortly after its IPO. But the pessimism of the past few months may be a little too excessive.

"Looking at the stock down near $8, it becomes interesting again," Bain said.

Bain said the biggest reason he's excited is the online gambling site. The company didn't formally announce plans to get into the online gambling business until February of this year and it officially launched its site for international customers (betting online is illegal in the United States) in late June.

So Bain said that it doesn't make much sense for the stock to be trading near the same level it was at last summer considering that WPT now has a new revenue stream.

"People paid $8 a share for the television operations. That means investors, if they were correct in their original valuation, are almost getting the online business for free," he said.

But just how lucrative will online gaming be for WPT? Following the company's second-quarter results, some analysts were lowered their third-quarter sales forecasts since the company said it did not expect "significant online gaming revenues" in the quarter.

Still, the reduced outlook may now be more than factored into the stock price. The company trades at just 18 times 2006 consensus earnings estimates of 44 cents a share. And these projections may turn out to be conservative, according to Todd Eilers, an analyst with Roth Capital Partners.

"The company has not yet begun to meaningfully market and promote the online gaming site. We now expect increased marketing and promotions beginning in late [third quarter] and through the end of 2005 to drive online gaming revenue in 2006," he wrote in a recent report.

Eilers wrote that online gaming could generate nearly $13 million in sales next year, about 30 percent of the company's total revenue. What's more, the business is expected to be highly profitable. He thinks WPT could earn 55 cents a share in 2006 and that the online-gaming business alone will add 30 cents to earnings.

Licensing business is booming

Still, there are other risks. First and foremost, investors appear to be worried about how much WPT will be paid for a new show called the "Professional Poker Tour."

WPT filed a suit against the Travel Channel last month, alleging that the Travel Channel was interfering with contract negotiations that WPT was having with ESPN about airing the "Professional Poker Tour" after talks between WPT and the Travel Channel to air the show ended.

But last week, WPT announced that ESPN had withdrawn its offer and that WPT was once again negotiating with the Travel Channel. That disappointed investors, who had been hoping that ESPN, which has much greater exposure than the Travel Channel, would have been a significant boost for the company.

"I've always felt that the Travel Channel is a blessing and a detriment for the 'World Poker Tour'," said Bain. "It looked like the 'Professional Poker Tour' could have gone to ESPN and that would have been big."

Nonetheless, Bain thinks investors shouldn't worry too much about the media operations. He believes the stock is worth a look at these levels as long as the company continues to do a good job of licensing its brand name. To that end, there are WPT-branded cell phone games, slot machines and lottery tickets.

Sales from product licensing, which like the online gaming business is more profitable than the television segment, have skyrocketed in the past year. Licensing sales accounted for nearly 17 percent of total sales in the second quarter, up from just 1 percent in the second quarter of 2004.

And now that the takeover talk surrounding WPT has subsided and investors are less enthused about the online-gaming business, the stock finally is trading at a reasonable level. So this looks like an opportune time to raise the bet.

For more Fun Money stories, click here.

For a look at how casinos in the Gulf are faring after Katrina, click here.

Analysts quoted in this story do not own shares of WPT Enterprises and their firms have no investment banking relationships with the company.  Top of page

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