Should Investors Finance The Scientific Games (NASDAQ: SGMS)’s Sinful Stocks?

Socially Responsible Investing (SRI) advices that investors should refrain from investing into companies that run businesses that impact society in a negative way. These include guns, gambling, alcohol, tobacco, military equipment and prisons. Investors usually avoid putting their money in these industries, in order to maintain a clean conscious. However, there are several investors who don’t mind having a sinful stock or two to their name. One such company that promises a good return is Scientific Games (NASDAQ: SGMS) Corp. It’s a technology company that caters to the need of lottery and gambling industries. It’s not considered a bad investment as long as it generates good return.

Let’s look into what exactly Scientific Games (NASDAQ: SGMS) has to offer. Its list of commodities include instant and draw based lottery games, server based lottery and gaming, electronic game machines and contents, sport betting, loyalty and reward programs as well as social and mobile contents and services. The company is not a massive setup, but $800 million market capitalization expectation seems impressive.

What makes this investment attractive is that it’s a small company with the potential to grow fast and earn more. Last year, Scientific Games (NASDAQ: SGMS) acquired WMS industries and has promised to deliver annual savings of $100 million by the end of 2015. The merger will ensure huge saving for Scientific Games (NASDAQ: SGMS). The company has also signed a contract with La Francaise des Jeux, operator for French lottery, which is the world’s second largest instant lottery. It also has integrated with Games specialist Hasbro (NASDAQ:HAS), to supply instant Games for Washington and Delaware.

In terms of stock valuation, the company’s price-to-sales ratio is 0.6, which is well below its 1.1 five year average. This might not be appealing for investment purposes, but a company going out of business can look attractive on valuation basis. Scientific Games (NASDAQ: SGMS) might portray a lot of growth potential as it’s a small company, but share-holders might question the growth of the shares value. The company shares have suffered a 3% loss over the past 20 years, and a gain of 9% in 15 years. It has also been reduced to half the size of when it had started. With such fluctuations, the company could scare potential investors off.

Furthermore, in its last quarter, it reported revenue rise of 77%, due to its WMS integration. Also, there has been a rise in the operating income, along with impressive figures rise in cash and free cash flow. But net losses worth $70 million also seemed daunting, most of which were due to interest expenses.

Additionally, this stock isn’t for investors who look for dividend as the company is in rapid growth stage, and needs all the cash it could, to cater to the situation. Scientific Games (NASDAQ: SGMS) does have a growing top line, but its net income has been shrinking in recent years. The company is also trapped in long terms debts of about $1.5 billion in 2012, that has increased to $3.2 billion by mid-2014.