PointState Capital knows a thing or two about finding stocks that are ready to explode, and with its investment in Amaya this week, the company is betting that online poker in America is going to continue to expand.
Headquartered in New York City, the hedge fund paid $280 million for an 8.76 percent stake in the PokerStars owner, which translates to more than 11.6 million shares.
Though the purchase is substantial enough to warrant a seat on the Amaya board of directors, according to the SEC filing PointState Capital will not be an active investor, meaning the company will decline the position and remain on the sidelines.
Oiling the Stock
It didn’t take long for other investors to take notice of PointState Capital’s positioning in Amaya as the stock (NASDAQ: AYA) shot up 73 cents on Tuesday, and while that might not seem like much, that correlates to about a $20 million gain, not bad for a day’s work.
But that’s chump change to PointState, a hedge fund whose portfolio grossed more than $1 billion last year betting on falling oil prices. Zach Schreiber, CEO and chief investment officer, provided a 27 percent return to his investors on oil after deducting fees paid to his company.
In all, PointState is rumored to have profited $2 billion in 2014, though precise figures aren’t public knowledge as the firm is private.
Hedge funds are notorious for taking large positions in companies, watching the stock price soar, and then quickly dumping the investment, taking profits and leaving ordinary shareholders with a now overvalued asset.
And PointState’s reluctance to join the board might signal the firm isn’t in Amaya for the long haul.
Considering the ongoing investigation by the Canadian financial market regulator Autorité des Marchés Financiers (AMF) looking into allegations of insider trading leading up to Amaya’s $4.9 billion takeover of PokerStars, the stock is justifiably not attractive to all investors.
But that shouldn’t scare off those who are considering taking a position in Amaya, as the company said in April that an internal audit found “no evidence of any violation” among its chief executives.
“If it wasn’t for that pesky investigation, shares would probably be higher,” Nathan Smith, analyst for financial news site The Motley Fool writes. “Until the investigation concludes, investors are taking a major risk by investing in this company.”
New Year, New Jersey
That “risk” could payoff in a major way should more states in America decide to legalize online gambling, with California and Pennsylvania both currently debating its potential passage.
With a worldwide iPoker market share of 66 percent through PokerStars, Amaya stands to greatly capitalize from continued legalization.
The company is also expected to make its long-awaited return to the United States in the coming months through entry in New Jersey, four years since PokerStars was banned from the country following poker’s Black Friday in 2011.
Should that happen, PointState and Schreiber’s 8.76 percent stake is expected to be valued at much more than the $280 million the investment group paid for the position, and when it comes to sound investing, that’s the name of the game.