TransAct Technologies (Nasdaq:TACT) sells printers and related supplies to a diverse and growing set of customers in differing industries. Its sights are firmly set on the gambling space, and though it has posted three years of solid sales and earnings trends, its cash flow production is much more mixed.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Full Year Recap
Sales improved a modest 4.4% to $66 million. TransAct breaks its sales into five different categories and reported a mixed bag of divisional trends. Lottery-based sales growth was the most impressive, jumping 83.4% to $14.9 million, or roughly 22.5% of total sales. The laggard was in the banking and point-of-sale category that logged a 31.6% decline to $10 million, or about 15% of sales. Both the casino and gaming, and TransAct Services Group logged roughly 3% top line declines to weigh in at 38 and 22% of sales, respectively. The final new category was Printrex, a specialty printing company it acquired during the year. It reported $1.7 million in sales to account for the remaining roughly 3% of total sales.

Minimal 1.7% cost of sales growth sent gross profit ahead by 9.2% to $24.6 million. Operating expenses rose 5.7% to outpace sales growth, but included a $184 million restructuring charge. Still, operating income jumped 19.2% to $7 million, or 10.6% of sales for a healthy net profit margin. This worked out to 49 cents per diluted share. Free cash flow came in at roughly $1.5 million to lag reported net income by a fairly wide margin.

Outlook and Valuation
For 2012, TransAct said it expects a vast improvement to free cash flow to "at least" $7 million, or roughly the 49 cents per diluted share it reported as earnings for 2011. Analysts currently project sales growth in excess of 6%, total sales of $70 million and earnings of 60 cents per share.

This puts TransAct's forward P/E in reasonable territory at 9.7. The forward free cash flow multiple is slightly less compelling at closer to 14. A comparable firm is Zebra Technologies (Nasdaq:ZBRA), which trades at a forward earnings multiple of 14.5. Other more general printing rivals include Lexmark (NYSE:LXK) and Canon (NYSE:CAJ) that trade at 7.7 times and 18 times, respectively.

The Bottom Line
TransAct is focused on building out its capabilities in the United States' casino market, though the Printrex purchase added some diversification into serving the oil and gas market. And despite the casino focus, sales fell for the year, though this was due to lower sales in Italy. Adding to the capabilities for domestic gaming operators such as MGM Resorts (NYSE:MGM) continues to hold promise as TransAct can print targeted coupons and specials on slot machine receipts and payment tickets.

Despite the potential and reasonable valuation, TransAct remains a work in progress in terms of posting consistent and growing cash flows. The sales and earnings trends are there and have risen steadily since the global economy started recovering in 2009. 2012 could mark a solid year of free cash flow generation, according to management's guidance.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  2. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  3. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  4. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  5. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  6. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  7. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  8. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  9. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  10. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!