3 reasons why Aristocrat Leisure Limited is worth the gamble

Aristocrat Leisure Limited (ASX: ALL) has been a winner for investors far in 2014. The stock is up 13% this year, easily eclipsing the 3% gain of the ASX 200 following a 10% jump in the share price over the last couple of weeks. The catalyst was a company announcement that revenue and net profit after tax rose by 7.6% and 9.1% respectively in the six months to March.

Here are three reasons why investors should expect continued outperformance by Aristocrat:

Analysts are positive on the stock.

While this doesn’t always mean the stock will outperform, a number of analysts including Citi and Deutsche Bank, believe that the company will have a very strong second half of this financial year.

The analysts note that the next six months will benefit from new game releases and a continued expansion of services in the US.

A breakout 2014-15

The outperformance is expected to continue next financial year, when net profit is forecast to jump by over 35%. Some brokers believe that Aristocrat will continue its momentum of growing sales in the US at the expense of competitors and that the company’s foray into mobile gaming via iPhone and Android apps will be a catalyst for the next phase of growth.

Growing market share

Aristocrat already holds the largest market share in Australia for electronic gaming machines. This is unlikely to change any time soon; however the mature market means that growth will be slow. In the US, Macau, and the Philippines, the company is a far smaller player and has room to grow.

Importantly, in the last six months Aristocrat managed to increase US sales by 4% while its three largest competitors all saw sales fall. To me, this implies that the company is increasing its market share and is delivering a superior product to customers.

Bonus- a growing dividend yield

Additionally, the strong forecast earnings growth will translate into larger dividend payouts. The company currently offers a yield around 3.3%, however this could grow towards 4% next year.

Another company with great dividend prospects is The Motley Fool's favourite income idea for 2014. Check it out in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2014."

Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

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