The Aristocrat Leisure Limited (ASX: ALL) share price tumbled in the market sell-off as it posted its outlook for the year.
The Aristocrat share price lost 3.5% to a one-month low of $30.73 when the S&P/ASX 200 Index (Index:^AXJO) crashed 2.5% at the time of writing.
But Aristocrat is in good company. All sectors on the ASX are trading in the red, and its growth shares that are taking the beating.
Growth shares taking brunt of selloff
Aristocrat falls into the “growth” category too. It’s more about rising bond yields that is behind the sell-off in the Aristocrat share price than its outlook, in my view.
The gaming machine maker issued a trading update at its annual general meeting today. Management is forecasting growth for the financial year ending 30 September 2021 over FY20.
Aristocrat share price ignores outlook for 2021
It plans to do this by maintaining or growing its market leading positions in Gaming Operations. This is measured by the number of machines that are operating and game performance.
Aristocrat has grown its “floor share” in gaming venues and it believes this will continue.
But it’s the digital business that is exciting growth investors. On that front, management is tipping further growth in Digital bookings. It also expects User Acquisition spend to remain between 25% and 28% of overall Digital revenues.
Are margins under pressure?
However, the growth will come at a cost. Aristocrat anticipates an increase in costs across the business as it builds scale and continued investments to drive longer-term growth.
The dour margin forecast may have spooked some investors, but rising bond yields are also casting a shadow over the group.
Why rising bond yields matter to the Aristocrat share price
The 10-year US government bond yield jumped over 1.614% last night to a more than one-year high, reported CNBC.
Bond investors were spooked by poor demand for the US government’s latest bond auction and the risk of rising inflation. The 10-year Australian bond yield is also being pushed higher and higher yields will lower the valuation of shares, particularly growth shares.
ASX shares that can continue to grow their top and bottom lines regardless of the volatile economic environment will eventually win out over the longer-term.
But it’s the more speculative shares that got pumped up by record low rates that will suffer the most in a rising yield environment.
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Brendon Lau owns shares of Aristocrat Leisure Ltd. Connect with me on Twitter @brenlau.
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and Pointsbet Holdings Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Kogan.com ltd and Pointsbet Holdings Ltd. 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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