Developers holding Aristocrat back

Warning signs despite strong recent performance.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It’s a sound reminder than no company is perfect. In comments last week to the Associated PressAristocrat Leisure Limited (ASX: ALL) chief executive Jamie Odell noted the company has hit a phase of stagnant growth in big markets and has failed to actively pursue new growth opportunities.    

In particular he said that the company, which develops and supplies electronic gaming machines for casino operators like Echo Entertainment Group (ASX: EGP) and Crown Limited (ASX: CWN), has failed to compete in the emerging demand for more interactive ‘entertainment’ video slot games which make up around half of the 400,000 gaming machines in the US alone.

While the segment remains a growth opportunity for the company, it will be a challenge to successfully muscle in on the existing machine providers and take market share. The reason provided by Mr Odell was hard to fathom; Aristocrat didn’t pursue the product line because developers found them too “boring”. Never mind the consumer demand, the huge potential the market represented, or even the massive double digit growth in gaming revenues coming out of gambling Mecca Macau;  the company’s developers thought them dreary.

Aristocrat announced a strong profit result for the 9 months to September 2012. Revenue was up 30% to $586 million and earnings before interest and tax (EBIT) was up 76% to $67 million, driven by strong growth in Japan and a dominant market position in the Asia Pacific. However it seems bizarre to ignore an opportunity for the temperament of an internal department. Doing so is not in the best interests of shareholders and allows other game makers such as Ainsworth Game Technology (ASX: AGI) an opportunity to increase dominance and win first mover advantages.

Foolish takeaway

Despite great recent financial performance it’s concerning for investors that Aristocrat has been held back from growing further by the company’s own development team. It is the role of management to consistently identify and chase new opportunities to grow revenue. This requires being nimble and flexible to change. Failure to do so because of resistance from an internal department should not be acceptable and should raise the ire of company owners.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Regan Pearson doesn’t own shares in any companies mentioned in this article.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »