Suspicious PokerTek Stock Movement

by John Mehaffey on January 7, 2013

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    PokerTek is a brick and mortar gaming device company that specializes in electronic gaming.  Their two products are PokerPro and BlackjackPro.  These games tend to be installed on cruise ships or in casinos that are not allowed to deal real cards by law.  Some of their installs have failed.  The limited install opportunities have affected PokerTek’s market greatly.

    PokerTek Installation News

    A typical trading day for PokerTek stock is 10k-15k shares.  The company’s stock price had been bouncing around the $.75-$.80 range for six months.  The company announced that it had reentered Mexico after some regulatory issues.  It was good news for the company.  It has hovered just below break even for years and maybe future installs could help it become profitable.  The company also announced new installs in Ontario for its BlackjackPro game.

    The company’s stock price jumped 46% on the Mexican market news.  While it was a large percentage jump, it just went from $.72 to $1.05 a share.  This is not all that unusual for a stock that typically trades around 10,000 shares a day after big news hit the market.  What happened next is a cause for concern.

    Penny Stock Speculators Join the Frenzy

    Several penny stock websites started pushing PokerTek as their next big stock pick.  Within a few days, stock market forums were flooded with bullish picks on the stock.  The stock exploded and ran up over 50% in two days and over 200% in ten trading days.

    The Yahoo PokerTek Message Board got especially polluted by these speculators.  Some of those posts got deleted by Yahoo moderators but several remained.  One poster proclaimed:

    A FEW WEEKS AGO ON A TIP FROM BROKER FRIEND SAYS IT GOING TO 2.50-3.00

    This posts fails the no CAPS rule and those that like to correct message board grammar would want to tear this post apart.

    A dubious press release was also carried by several news sites from a website called Emerging Growth.  The top of the press release even encourages companies to inquire about having their company carried by this service.

    Insiders Buying

    Insiders are buying the stock too.  I do not think that they have anything to do with the euphoria surrounding the huge prices increases.  They did not get in at the bottom, nor would I expect the company insiders to have anything to do with this type of suspicious price movement.

    Failed Install at Excalibur 

    The Excalibur in Las Vegas attempted to use PokerPro tables in their poker room in 2009.  They laid off all of their dealers and converted their poker room to PokerPro machines.  Players in Las Vegas just were not ready for electronic poker tables and the room was not run well either at the time.  Excalibur moved back to live dealers after just four months.

    PokerTek Stock History

    PokerTek went public in 2005 at a split adjusted price of $24.  The price is split adjusted not due to it having a standard stock split that awards shareholders extra stock.  PokerTek instead had a 2.5-1 reverse split in February 2011.  This means that for every 2.5 shares someone owned, they received just one share.  The stock price also reflected this change and so the stock price went up 60% on the day of the split.

    This was done to satisfy NASDAQ listing requirements.  NASDAQ requires a stock to have a minimum bid of $1 for a 30 day period.  PokerTek has been issued several warnings by NASDAQ over the years and have always seen their stock either increase or resolve the listing requirements with a reverse split.

    Author Observations

    I do not think insiders at PokerTek have anything to do with this.  They are buying and they are likely buying for the long term. The news that has come out in the past few weeks is good news.  I just feel that there is a reason to be concerned when penny stock pushers are encouraging investors to buy the stock and even creating press releases to push the position.  There are several forum posters that are long on the stock warning people to take a step back and see where all of this goes. I think that is a great idea.

    The last time there was a big run up like this the Department of Justice had just released an opinion that the Wire Act only applied to sports betting.  This was great news for companies looking to enter the U.S. online gambling market.  It was odd that this caused PokerTek’s stock price to explode though since they have never publicly discussed that an online poker software platform was in development.  There is still no such announcement a year later.  The stock eventually sold off and founds its way well below $1 like it was before the DOJ news.

    Author Disclosure: I have owned this stock off and on for years.  I do not own it now.  This looks like a classic third party pump and dump to me.  While great days may be ahead for PokerTek, this boom is likely to end just like it always does.  In my opinion, the price is likely to come down in the coming weeks once all of this dies down.

    Latest PokerTek stock price

     

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