Aristocrat Leisure Limited and Echo Entertainment Group Ltd: Are they worth a wager?

Two gaming stocks hitting new 52-week highs are signalling changing outlooks.

| More on:
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

Within the last week, two gaming stocks hit new 52-week highs, but does this signal some kind of revival in the casino and gaming industry? As consumer discretionary stocks, they rise and fall depending upon whether consumers have a lot of extra income to use on leisure and entertainment.

Currently conditions aren't the best with a tighter Federal budget being hammered out and consumer sentiment showing but a small improvement of late. However, before things really pick up, it may be worth seeing what these two companies are doing and why their outlook may be improving.

—  Echo Entertainment Group Ltd (ASX: EGP)

The operator of the Star Casino in Sydney has had a topsy-turvy year since May 2013 when Crown Resorts Ltd (ASX: CWN) divested its ownership and began the steps of applying for a gambling license for a new proposed casino in Sydney. Echo Entertainment's shares immediately dropped and trailed down to as low as $2.20.

Since February 2014, it's up about 48%, hitting a new high of $3.30 last week. It has shown some improvement in revenue and a new CEO, Matt Bekier, is attempting to steer the company on a new growth path. It has also joined with a Chinese development company to win approval for building a new casino in Brisbane, where it currently operates the only casino in the city. It is competing for the project against Crown Resorts, which wants to break open the Brisbane market as well.

A final decision naming the project winner is expected in early 2015. If Echo can win this one, it can maintain its exclusive business there, but it will also have to shoulder part of the projected $1 billion development cost with its consortium members.

—  Aristocrat Leisure Limited (ASX: ALL)

The gaming machine producer has the largest market share of the gaming machine industry in Australia as well as in Asia. It is famous for its poker machines and other automated games, yet recently has moved into social gaming, as it sees many new and potential customers are enjoying games online, especially on mobile devices.

In late 2012, it bought US-based Product Madness, which makes games for websites such as Facebook. These are free games with no wagering, but players can buy extra things for the gameplay. If in the future online gambling laws change in the US, Aristocrat will be in a good position for it.

This month, it announced another acquisition which is projected to triple its North American gaming segment. It will purchase Video Gaming Technologies for about US$1.28 billion.

CEO Jamie Odell stated: "This combination also offers exciting growth opportunities for VGT by leveraging premium Aristocrat games and systems products, as well as national distribution opportunities for VGT's Class II products.

The strong accretion and free cash flows expected from this transaction will not only transform the scale of our gaming operations business today, but will also preserve Aristocrat's options to pursue acquisitions in the future in key growth segments – including digital."

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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
ETFs

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 »

Two people in suits arm wrestle on a black and white chess board.
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 »

⏸️ 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 »