The potential superstock of the week is TransAct Technologies (TACT) . TACT is engaged in the developing and selling of software-driven tech...

Weekly Superstock Scan 6 Nov - 10 Nov: TransAct Technologies. (TACT)

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The potential superstock of the week is TransAct Technologies (TACT). TACT is engaged in the developing and selling of software-driven technology and printing solutions for high growth markets including restaurant solutions and casino.

 



By sales units, TACT operates in the following area:
  • Restaurant solutions - Line of AccuDate terminals for backend restaurant solutions
  • POS automation and banking - POS printers
  • Casino and gaming - Printers used in slot machines, video lottery terminals and other gaming macines
  • Lottery - Lottery printers to International Gaming Technology and its subsidiaries
  • Printrex - Used to log and plot oil field and down hole well drilling data in the oil and gas exploration industry
  • TransAct Service Group (TSG) - Sales of consumable products, replacement parts, maintenance and repair services.
As at Q3 FY2017, Casino and Gaming and TSG are the largest contributors to TACT's revenue, contributing about one-third each.


Technical




Price has been consolidating in a $9.00 - $ 10.50 box since August this year. On a longer term since March, TACT has been trading in a small range from $8. Last week, TACT delivered a wonderful set of Q3 2017 results, causing TACT to soar to close at $12.80. The volume of the week was 385 thousand shares, 5 times its average weekly trading volume.

Fundamental



Including the current quarter, TACT reported 4 consecutive quarters of year on year EPS growth.

Diversification into Restaurant Solutions

TACT entered the restaurant solutions market several years ago with the understanding that it would require a multi-year ramp-up. In the recent few quarters, the restaurant solutions segment was a main contributor for TACT's growth. In the last quarter, the revenue from the segment almost doubled from third quarter a year ago.

In 2017, TACT launched its flagship product - the AccuDate XL terminal in May at the National Restaurant Show. Since then, sales of the product has been growing. The AccuDate XL has many functions and is set to revolutionise food preparation, food management and other critical back-of-house processes. 



To support the growth of this segment, TACT has also assembled a team of sales professionals who are focused exclusively on the restaurant solutions market. A direct marketing campaign aimed at driving awareness for AccuDate XL terminal was also implemented.

Building Recurring Revenue

TACT has been moving forward with the strategy of creating recurring revenue. For the AccuDate terminals, TACT requires its customer to exclusively use their TransAct labels if they want to warranty on the terminal. This will provide a source of recurring revenue as customers purchase the TransAct branded labels for the terminal.

TSG has also began to offer a full suite of software maintenance and product support warranty offerings to increase the amount of recurring revenue. 

A trend TACT saw in the lottery market is the lengthy extension of existing contracts for the lottery market. This is likely to drive sales of spare parts for the lottery printing machines.

Nice Ticker

TACT's easy to remember ticker may play a role in letting the stock goes viral.

Matrices
o Small float of  6 million shares. However, its average trading volume is even smaller at 22 thousand shares. Float approximately 272 times its average daily trading volume.
- TACT is trading at 19.1 times its trailing twelve months EPS.

Risk Factors/ Things I do not like:

  • High Valuation: With TACT trading at 19.1 times its TTM EPS, there is a good chance that it is already fairly valued and upside might be limited.
  • Dependency on IGT in the Lottery Market: The lottery market is still a significant contributor for TACT and TACT is almost fully dependent on IGT for the market. IGT's purchase cycle will affect TACT directly and may cause fluctuation in its earnings and stock price.


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