Then The Horse Stepped On Me…

| October 19, 2009 | 0 Comments

Linda was out of town recently.  She had a conference at some resort up north.  While she enjoyed the cool weather, I was holding down the fort at home.  Of course, we had another heat wave hit the valley.  The temperature was around 100 degrees.

One of my responsibilities was feeding and caring for the horses.  All was fine for the first few days, but of course, life is never that simple.

Last Wednesday at 5:00 am, I was out in the barn feeding the horses. Linda’s horse, Slew, decided he wanted his food.  He tried to bully his way towards the feeding area.

That’s when he stepped on my foot.

I’ll spare you the litany of swear words that escaped from my mouth.  I will share with you one small fact… I was wearing flip-flops.  It was not one of my brighter moments.

Now, I don’t know if you’ve ever had the pleasure of being stepped on by a horse.  Trust me, when a 1,200 pound animal puts his foot down, it’s not comfortable.  As a matter of fact, it’s downright painful.  Despite my recent and painful interaction with the horses, I still think they’re amazing animals.

Slew is a descendant of the famed racing horse Seattle Slew.

Slew, while running a few times at the track, never achieved the fame and fortune his ancestor did.  That’s why we own him now.  Linda rescued him from the racetrack.

The racetrack is a fun and exciting entertainment venue.  Who doesn’t enjoy watching the ponies run?  Most people, however, forget that it’s also a business.  There are ways to make money off of racing horses other than betting the trifecta.

That’s what got me thinking about the racetrack as an investment opportunity.

If you haven’t taken the time to research this interesting area, don’t worry… I did all the hard work for you.

Here’s what I found.  During the most recent economic downturn, a number of racetracks have struggled.  Attendance has waned at the racetrack and profits have dried up.

As a result, Magna Entertainment Group is putting some of their prized racetracks on the auction block.  I’m sure you’ve heard of Pimlico, Santa Anita, and Gulfstream.  Believe it or not, all of these famous racetracks are up for sale.

Pimlico is home to the Preakness Stakes… the second leg of the famed Triple-Crown.  And Santa Anita is host to the 2009 Breeder’s Cup.

Unfortunately, the bankruptcy of Magna Entertainment and the auctioning off of these racing sites might mar the “Sport of Kings” a bit.  But never fear.  With the recession coming to an end and consumer confidence building, attendance at the tracks is certain to build.  Racing enthusiasts will once again return to the track.

Normally when looking for investments in an industry, I like to stick with the 800lb gorilla.  In the horse racing world, that would be Churchill Downs (CHDN)… the location of the famed Kentucky Derby.  They have a half a billion dollar market cap and last year generated more than $430 million in revenue.

But I found a little company doing something exciting.

Take a look at Youbet.com (UBET).  They provide live horse racing and accept wagers all online.  You can visit their site and place bets at more than 180 racetracks all over the country.  Their technology is state of the art.  And, because they deliver the horse racing experience online, their overhead is limited.

Unlike a racetrack that only draws in visitors from the local area, UBET can attracts spectators from across the country.  No attendance issues because of race times or weather conditions.

UBET is an emerging growth company with a $100 million market cap.  While their numbers are down a bit because of the recession, I see some very attractive data points.

First is revenue.  Their revenue last quarter actually grew to more than $30 million.  Not bad in a tough economy… imagine how they’ll do when things get better.  Despite an industry wide fall off in betting activity, UBET is seeing the number of wagers they are processing increase over 13%.

Net income fell a bit because of increased operating costs, but more importantly, the company posted a profit for the quarter.  UBET is seeing their working capital and cash position improve.  Best of all, they’re continuing a stock repurchase program for up to 10% of the company!

The only red flag I see is news the company will restate results because of an accounting error.  Normally this would scare me away, but the adjustment looks minor.  Provided nothing else is found wrong with the accounting system, now would be a perfect time to buy the stock.  It’s pulled back since the news of the restatement.

Take a look at UBET for your own portfolio.  It’s an interesting way to profit from the Sport of Kings.  Just remember not to wear flip-flops around horses… and don’t get stepped on.

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Category: Stocks

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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