Is this the best gaming stock on the ASX?

The gaming technology company Aristocrat Leisure Limited (ASX: ALL) is one that stands out when considering top stocks within the sector. Whilst it’s known widely for its pokie machine games such as Queen of the Nile Legends, it is the company’s online and digital segment that has investors excited.

Aristocrat has been making some smart acquisitions to boost this segment, the latest being the acquisition of Plarium Global Limited which many analysts expect will be accretive to earnings per share. With a significant portion of its earnings subject to US tax, the company will also benefit from the US federal corporate tax rate cut.

The online segment is also earning significant recurring revenues and has contributed to the company’s five-year earnings growth rate of 47% and a 2-year forecast earnings growth rate of 19% according to Morningstar.

Aristocrat trades at a PE ratio of 28 which reflects the market’s expectation of excess earnings growth. Its FY 2017 performance reflected a return on assets of 16% and a return on equity of 36%. It has a dividend yield of 1.4% with payout ratio of 44% which reflects management’s intentions to retain capital and reinvest it in growth opportunities.

So how does this compare to other stocks in the sector?

Ainsworth Game Technology Limited (ASX: AGI) is trading at a PE of 16 which is lower than Aristocrat, but its return on equity of 11% is also much lower. Last year its share price went as high as $2.75, but has since crashed 20% after management provided a weak trading update at its AGM.

Crown Resorts Ltd  (ASX: CWN) is trading at a PE of 25 with a return on equity of 6%. 2017 was not a great year for Crown with allegations that it had been tampering with pokie machines, the arrest of some of its senior employees in China, and poorly performing assets in Macau. Whilst some analysts expect Crown’s prospects to improve going forward, it doesn’t seem to be nearly as good a bet as Aristocrat.

Don't Buy A SINGLE Stock Until You Read This

While conflict overseas is all media talking-heads seem to mention these days, the billionaire founder of Tesla is losing sleep over what he sees as a far bigger threat.

Elon Musk Warns: This has "vastly more risk than North Korea"

If you missed your opportunity to get in on Google, Microsoft, or Amazon in their early days, don't let it happen again. This emerging technology trend could offer a second chance for anyone who wishes they took part in these millionaire-maker stocks.

Click here to discover more!

Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya.

The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.