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Why the Aristocrat Leisure share price has fallen 25% in the last 6 months

The Aristocrat Leisure Limited (ASX: ALL) share price has tumbled 25% lower over the last six months and is currently trading toward the bottom end of its 52-week range.

At the time of writing, the Aristocrat share price is trading at $23.32, sitting 3.12% higher for the session.

Aristocrat Leisure is a leading global provider of gaming solutions that offer products and services, including electronic gaming machines, digital gaming and casino management system.

In early 2018, Aristocrat grew organically through the acquisition of Israel’s Plarium, a social game developer, and US company Big Fish, a casual game developer. Both acquisitions are expected to contribute significantly to Aristocrat’s bottom line. Hence, higher growth expectation drove Aristocrat Leisure’s share price up to an all-time high of $33.06 in July 2018.

Aristocrat Leisure reported a 47.7% increase in revenue and 9.6% increase in net profit in FY 2018. The impressive results were driven by growth in the Americas, ANZ, and Digital.

Management added that Plarium and Big Fish have significantly increased Aristocrat’s presence in the high-growth social game market. The acquisitions contributed substantially to the digital segment earnings with year-on-year growth of 172.5%. The digital segment now represents 27% of Aristocrat’s overall profit.

After achieving record year-on-year growth, Aristocrat anticipates continued growth in 2019 but warned that FY2019 earnings are expected to be skewed to the second half.

I believe that the uncertain outlook is a major factor contributing to the recent decline in Aristocrat’s share price.

Foolish takeaway

Given the uncertain outlook, Aristocrat’s five-year average earnings per share (EPS) growth of 38% is notable. In comparison, its peers such as Tabcorp Holdings Limited (ASX: TAH) and Crown Resorts Ltd (ASX: CWN) have a five-year average EPS growth of -35% and 8.35% respectively.

The Aristocrat share price is now trading at 24.8 times earnings, compared to the average gaming and gambling industry price-to-earnings of 43.8 times.

Even though the short-term outlook is cloudy, investors with patience and a long-term view could do well given Aristocrat’s current strong fundamentals and high growth.

Motley Fool contributor Ivan Loh has no position in any of the stocks mentioned. 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.

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