Why Aristocrat Leisure Limited is outperforming the market

Why Aristocrat Leisure Limited (ASX: ALL) has been one of the best performing large caps over the last 12 months.

| More on:
a woman

You鈥檙e reading a free article with opinions that may differ from The Motley Fool鈥檚 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

Aristocrat Leisure Limited (ASX: ALL) has been one of the best performing large caps over the last 12 months with the gaming company's share price rising 37% compared to the 4% increase of the S&P/ASX 200聽(Index: ^AXJO) (ASX: XJO).

Most of the share price appreciation has occurred over the last several months after Aristocrat posted an impressive full year result in late November and announced the US$990 million acquisition of social gaming company聽Big Fish Games.

A different Aristocrat

The 2017 digital gaming acquisitions of Big Fish and Plarium will diversify Aristocrat's business with the digital component comprising 38% of pro forma revenues as at 30 September 2017. The majority of the business still consists of the company's traditional strength in poker machines via outright machine sales and gaming operations.

The move by Aristocrat's management towards mobile gaming is underpinned by the fast growth in mobile gaming that is outpacing the traditionally dominant segments of PC and console gaming. Looking forward, gaming market intelligence firm Newzoo聽projects mobile gaming to grow at a compound annual growth rate of 13% over 2017-2020, which is higher than the 7% growth forecast for the overall gaming industry over the same period.

American gains

A recent Slot Managers Survey conducted by Goldman Sachs indicated that Aristocrat is continuing to gain market share in the Americas with company's Lightning Link being the most anticipated game in the history of the survey. The Americas region is the company's largest and most profitable arm of the poker machines business and was the main contributor to net profit after tax and before amortisation of acquired intangibles rising 36% to $543 million in FY17.

In FY17, segment profit in the Americas grew by 26% to US$560 million. In North America, the top line was boosted by an increase in the number of gaming units sold in conjunction with higher average selling prices. The company's gaming operations also performed well with a 10% rise in total units and a 5% increase in average daily gaming operations revenue.

Foolish takeaway

Aristocrat trades for around 26 times consensus forward earnings which is a reasonable valuation premium given the company's track record of growing the business and its future growth prospects.

The company continues to outperform other gaming companies such as Crown Resorts Ltd (ASX:CWN) and Star Entertainment Group Ltd (ASX:SGR). Aristocrat's competitor, Ainsworth Game Technology Limited (ASX:AGI) has seen its share price fall 38% since last Friday after the company released a trading update revealing its profit outlook is considerably below prior expectations.

For Aristocrat, attention will now turn towards the release of its half year earnings report on May 24 to see if the company can deliver on the bullishness priced into the stock.

Motley Fool contributor聽Tim Katavic聽owns shares of Aristocrat Leisure Limited.聽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 Scott Phillips.

More on 鈴革笍 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.
鈴革笍 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
鈴革笍 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
鈴革笍 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

鈴革笍 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