John Horowitz was enjoying a quiet cup of coffee on a Saturday morning when the phone rang. "Hello! May I please speak to Jonathan?" said the icy voice on the other end of the line. John's first reflex was to hang up.

"John, my name is Peter of Wiess, Wisser, & Wyzest. I am calling to protect your assets. If I had an investment idea that made sense to you, and you had extra money to put into it, do you think you might be interested?"

"Well, sure, Pete. But I have to go now. Bye." John said as he quickly snapped the phone down. Mission accomplished, cold caller terminated. Off of phone, out of mind.

About a week later, John was up on a ladder cleaning his gutters when the phone rang. He got down as quickly as he could (nearly breaking an ankle) and grabbed the phone just before the tenth ring. "Hi, it's Pete. We spoke last week." John gnashed his teeth. "If you're still interested in investing, I've got this great idea for you. I've made a killing on it, and I think you can too."

John's neurons started firing left and right trying to remember who the heck this Pete guy was. "I don't remember talking to you. Who are you with again?"

"Triple W investments. But let's talk about the investment: the company's revenues have gone up 50% in the last year and their earnings might be going through the roof! And the stock is still attractive to us."

John replied, "Well, that sounds interesting, but I have work I need to get back to here."

"Well, John, do you mind if I send you something about this company so you can see what a hot stock this really is?" Pete inquired.

John snapped, "Sure, yeah, whatever, bye."

Next morning at 8 am, a FedEx truck pulled up in front of John's house. John wasn't expecting a package, and this was a complete surprise. As he signed for it, he noticed it was from Peter at Wiess, Wisser, and Wyzest. Inside he found a short letter, 50 pages of glossy material about Mississippi Gamblers [Nasdaq: JOKR], an autographed picture of Pete, and a frame to put the picture in. John started to read the elegantly printed letter.

"Dear John,

Here is the information you requested about Mississippi Gamblers. I think you will be as excited as we are about the company when you see the casino revenue growth. I will call you tomorrow with more information.

-Pete"

John started to page through the information. He had never considered investing in a gambling company before, but this gamble began to seem compelling. The front page was a research report by Pete that had in bold across the top, "Revenues up 50%!"

His golf buddy, Motley Fool, rang the doorbell.

"What have you got there, John?" Motley asked, picking up Pete's head-shot.

"Oh, just some material on a casino company I'm thinking about," John replied. "Their growth looks good, but the stock price hasn't caught up yet."

Motley began paging through the documents. He skipped past the promotional material and got to the heart of the matter: the financial statements. He zeroed in on the following:

     ($, 000's)                 1995     1996
      Casino Revenues          20,000   30,000
      Promotional Allowance    (5,000) (15,000)
      Expenses                 14,000   14,000

"John, I think you better take a second look at this growth," The Fool said. "The revenues are up 50%, all right, but something else is going on here."

What should John see from the Fool's thumbnail snapshot?

1) Promotional allowances are up 200%, therefore not such a hot stock.

2) Promotional allowances are up 200%, therefore a good stock to consider.

3) Net income is up, therefore a good stock to consider.

4) Net margins are up, therefore a good stock to consider.

Enter your selection in the field to the lower right, and get immediate feedback on the answer!

The answer is...

1) Promotional Allowances are up 200%, therefore not such a hot stock.

"You see, John, the revenue growth the company has is not 'real' by any stretch of the imagination. While the company may be taking in $10,000,000 more a year at the blackjack tables and slot machines, they are also giving away $10,000,000 more worth of free food, rooms, bus tickets, match-play coupons and the like in order get this growth. This is what promotional allowances are."

"Oh, so they are giving away the farm to get more people into the casino?" John asked.

"Exactly." The Fool replied. "They are paying people to gamble and still booking the money going in the slot machines as revenues. However, their real, net revenues are actually flat as Kansas. Promotional allowances are an expense that need to be subtracted from the gross revenue in order to get a better picture of what the casino is actually winning."

John slung his golf bag over this shoulder. "Yeah. Now that I think about it, that idea is way out of bounds. I'd rather be straight down the middle and play it conservative than duck-hook one into the woods. Let's go play."

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