It has been a disappointing year so far for the Aristocrat Leisure Limited (ASX: ALL).
Since the start of 2022, this gaming technology company’s shares have lost a quarter of their value.
Where next for the Aristocrat share price?
While the Aristocrat share price performance has been very disappointing for shareholders, it could prove to be a buying opportunity for others.
That’s the view of analysts at Morgans, which have recently named the company among its top picks on the Australian share market.
According to the note, the broker has an add rating and $43.00 price target on its shares. Based on the current Aristocrat share price of $33.91, this implies potential upside of 27% for investors over the next 12 months.
What did the broker say?
Morgans notes that Aristocrat has a leadership position in two growing markets and is generating significant recurring revenue.
Pleasingly, the broker expects this to continue and is tipping its pokie machine and digital businesses to continue winning market share. It explained:
ALL is a global market leader in the rapidly growing land-based gaming and mobile gaming industries. It has delivered revenue growth of 17% pa over the past five years and 80% of revenue in FY21 was recurring. We expect ALL to continue to take market share in all its product segments. Demand for its gaming machines and digital games is resilient to economic cycles.
Morgans also highlights that the Aristocrat share price has derated to a very attractive level. This is despite its positive outlook and very strong balance sheet, which provides it with M&A opportunities even after its recently announced share buyback.
The recent underperformance of the shares may have been a function of concern about ALL’s exposure to Ukraine, although it has recently stated that 75% of its staff there have relocated to safer locations and there is no material impact on earnings.
The underperformance means, however, that ALL’s 1-year forward P/E has derated to less than 20x from a high of 30x last September. With $3.3bn of currently available liquidity, ALL has significant funding capacity for growth, even after the buyback. It has a stated ambition to build a meaningful presence in the rapidly growing online real money gaming segment, which we believe may be achieved both through organic investment and inorganic acquisitions.