This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

October 2, 2008 - WMS Industries (WMS-NYSE) engages in the design, manufacture, and distribution of gaming machines, and video lottery terminals (VLTs) for customers in gaming jurisdictions worldwide. The company offers video gaming machines, mechanical reel gaming machines, and video poker gaming machines under Bluebird, Bluebird 2, and Twinstar brand names. It also sells replacement parts, conversion kits, amusement-with-prize gaming machines, and used gaming machines, as well as equipment manufactured under original equipment manufacturing agreements to casinos and other licensed gaming machine operators.

The company was formerly known as Williams Electronics, Inc. WMS Industries Inc. was founded in 1946 and is headquartered in Waukegan, Illinois.

Owning this stock is a little like buying Levi's stock in the gold rush days. You aren't betting on any one casino to hit it big. You're betting that betting will continue to flourish and more machines will be needed. So far that thinking has made pretty good money. Both revenues and profits have increased each year in the last 4.

Sales in 2006 (fiscal year ends in June) were $451.2 million, then $539.8 million, followed by $650.1 million in 2008. Last year, they totaled $706.4 million. This year, consensus from 14 analysts is for $774.9 million, then $864.31 million next year.

Fiscal first quarter looked good (ended in September) with earnings up 26% vs last year's first thanks to a 19% increase in gaming revenues. Installed participation games were higher by 9% and average daily revenues per machine were up12%, to $77.23 per unit. The average selling price per machine increased by 13% to $15,062. One model, the Bluebird2 gaming machine, was 69% of all new models sold. Operating margin increased by 300 basis points thanks to fixed costs being allocated over higher revenues.

With the economy showing some signs of stabilization, that maybe the worst is over, look for casino operators to upgrade their gaming machines. Furthermore, more casinos are scheduled to open in the next few months, both domestically and abroad. Also, WMS has a pipeline of new machines being developed, a necessary requirement for success as consumer tastes for machines are as fickle as fashion. Combined, these elements suggest 2010 and 2011 will see higher profits.

The stock has recovered nicely from its dip in the early part of the year when it traded at $15.50 a share, down from $41.20 in early 2008. It ran back to $50.10 only a few weeks ago before retracing to its current $44 a share. The stock was a steady performer from early in 2003 when it sold for $7 a share until early 2007 when it reached $41 (all stock prices reflect a 3 for 2 stock split in 2007). Only in the last two years has it shown some strong volatility. But then that's expected when the whole market seemed to be on the edge of collapse.

More numbers: Price to sales is 3.63. Price to book is 3.45. Book value is $12.91. Operating margin for the last 12 months was 19.96% with a Profit margin of 13.37%. Return on equity was 15.42%. There's $138.3 million in cash which is $2.36 per share. Total debt is $35.06 million or 16% of capital. Current ratio is 5.5. Beta is 1.84. In the last 52 weeks, the stock is up 113.25%. There are 58.7 million shares outstanding with a float of 54.89 million. Insiders own 5% while Institutions own almost all of the float. There is no dividend.

Aggressive investors who are bullish on the economy will like this stock. Even aggressive investors who don't like th economy should find this stock of interest as it continues to deliver good earnings, in spite of the economy. With more new casinos and older ones looking to upgrade their gaming facilities, WMS seems to have a bright future.

- Company Web site: www.wmsgaming.com

 Ted Allrich