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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.

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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.

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