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Should you buy Aristocrat Leisure Limited (ASX:ALL) before Thursday’s results?

The Aristocrat Leisure Limited (ASX: ALL) share price has slumped to a near seventh-month low ahead of the gaming machine maker’s full-year results announcement on Thursday.

The ALL share price slipped 0.8% to $25.74 on Monday and is down close to 20% since the end of July when the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index has lost half that amount.

Growth stocks like Aristocrat that are trading on a high price-earnings multiple (P/E) have been hit hard in the recent market sell-off and this also includes the CSL Limited (ASX: CSL) share price and the Afterpay Touch Group Ltd (ASX: APT) share price.

Added headwind

A poor result from competitor Ainsworth Game Technology Limited (ASX: AGI) has further hurt sentiment towards Aristocrat with the Ainsworth’s share price crashing to an almost seven-year low of 80 cents on Monday.

This has triggered fears that Aristocrat’s results in three days will also disappoint the market at a time when investors are particularly sensitive to bad earnings news.

You only need to look at the harsh reaction from recent profit downgrades as the CYBG PLC/IDR UNRESTR (ASX: CYB) share price and Lovisa Holdings Ltd (ASX: LOV) share price tumbled on the bad news.

Rolling the dice

But investors are being urged to bite the bullet and punt on Aristocrat ahead of the results as Ainsworth’s earnings miss isn’t a harbinger of disappointing results from Aristocrat, according to Deutsche Bank.

“Ainsworth has partly attributed an earnings shortfall to a 10% decline in the Australian market, highly competitive market conditions, approval delays, and the deferral of product launches to the second half,” said the broker.

“We don’t believe there are any material implications for Aristocrat as our channel checks suggest the market is flat to down 5%, Aristocrat is continuing to gain market share, and Australia represents just 12% of group earnings.”

Ord Minnett also believes Aristocrat is gaining market share, particularly in the US. The broker is expecting earnings growth from its North American gaming operations from the company’s class III gaming machines (slot machines) at the expense of its competitors.

“Significantly, increased digital exposure and title development for both land-based and digital platforms should provide further growth,” said Ord Minnett.

“Capital management opportunities are available and, coupled with strong execution by management and the scarcity of earnings growth in the market, lead us to see the risk/reward ratio remaining attractive for now.”

Deutsche has a “buy” recommendation on the stock with a price target of $41.45 a share, while Ord Minnett has an “accumulate” rating on Aristocrat with a target of $35 a share.

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Motley Fool contributor Brendon Lau owns shares of AFTERPAY T FPO, Aristocrat Leisure Ltd., CSL Ltd., and CYBG Plc. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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.

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