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Why the Aristocrat Leisure Limited (ASX:ALL) share price has tumbled lower today

In morning trade the Aristocrat Leisure Limited (ASX: ALL) share price has dropped lower following the release of its full year results.

At the time of writing the gaming technology company’s shares are down 4% to $25.00.

What happened in FY 2018?

In FY 2018 Aristocrat Leisure delivered a 47.7% increase in normalised operating revenue to $3,624.1 million and a 34.3% lift in normalised net profit after tax and before amortisation of acquired intangibles (NPATA) to $729.6 million.

Although this was impressive year on year growth, it was a touch lower than market expectations. According to a note out of Goldman Sachs, its analysts were expecting a full year net profit of $750 million and the Bloomberg consensus median estimate stood at $759 million.

Management advised that this result reflected the “strong performance delivered across the Group’s global portfolio, including profit growth of 16% in the Americas land-based business (to US$650m), a 9% lift in profit in the market-leading ANZ business (to $207m) and transformational profit growth of over 170% (to US$331m) in the Digital business, with sustained organic growth supported by acquisitions.”

Profits didn’t grow quite as quickly as its top line this year due to the company experiencing a higher contribution from lower margin Digital social casual games and continued reinvestment in the business through its higher design and development spend.

Regardless of this, the company is still generating significant cash flows. Management advised that normalised for acquisition related significant items, its operating cash flow increased over 23% to $988 million.

Why are its shares lower?

I suspect the majority of the selling is down to the outlook that it provided for FY 2019.

Management advised that it anticipates continued growth next year. However, it has warned that earnings are expected to be skewed to the second half. This reflects the timing of digital game releases and corresponding UA investment.

Should you invest?

Normalised earnings per share came in 34% higher at 114.1 cents in FY 2018, meaning its shares are priced at 22x earnings currently. I think this is undemanding for a company that has such a positive long-term growth outlook.

Though, it might be worth letting the dust settle on this result before picking up shares.

But when it does, I think it could be a great long-term investment ahead of gaming and gambling companies such as Ainsworth Game Technology Limited (ASX: AGI) Crown Resorts Ltd (ASX: CWN), and SKYCITY Entertainment Group Limited (ASX: SKC).

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. The Motley Fool Australia has recommended Sky City Entertainment Group Ltd. 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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