On a recent trip to New York, I was fortunate enough to walk the halls of some of the most illustrious investment firms in the industry.
These are the firms we have all heard about, firms with sufficient brand power, investing track records, and scale to pull in investments from the largest sovereign wealth and pension funds in the world.
In the many conversations I had, one ASX-listed name popped up more frequently than any other: Aristocrat Leisure Ltd (ASX: ALL).
Now, this really surprised me because (and perhaps I was ignorant about this!) I wouldn't have thought that this was a company that many would have heard of overseas.
Why Aristocrat?
My simple thesis for why global investors are so attracted to Aristocrat Leisure is its incredibly high profit margins and the quality of its management team.
In the 6-month period ending 31 March 2025, Aristocrat generated $1.2 billion of EBITDA at an EBITDA margin of 41%! It's the sort of margin that you don't often see and typically only at scaling enterprise software companies.
And given the gambling regulatory restrictions in the US and relative abundance of pokies in Australia, our local market has produced a weighty bench of talent in this space, which is unmatched globally.
The ASX is filled with opportunity
These are the sorts of opportunities I am excited to invest in on the ASX, and I am kicking myself for not investing in Aristocrat at least a decade sooner (during which time Aristocrat shares are up 700%!).
We often think of the ASX as a small pond compared to the NASDAQ and the NYSE, and to be clear, it is, but that doesn't stop it from developing genuine world-class companies and investment opportunities. Here are some of the most sophisticated investors in the world talking with genuine enthusiasm about an Australian-listed company.
It was a reminder that Australia can, and does, produce world-class companies and investment opportunities.
This places us, Australian-based investors, with a huge advantage because often, we know about these companies long before they are large enough for US-based institutional investors to care about them.
Finding those ASX small caps that are establishing product-market fit in niche areas (Australia is perfect for that, in my view) and then, through great execution, leveraging the sheer size of the USA to scale can be an extremely profitable enterprise.
The twin risks of ASX investing
Having said all of that, it's still important to be mindful of the pitfalls of investing.
ASX investing comes with great execution risk. The simple truth is that not every company can execute at the level required to scale globally. Macquarie Group Ltd (ASX: MQG) is one of the best examples of an ASX-listed company that has successfully scaled globally, but for every Macquarie, there is a long trail of failures.
Secondly, I think the structural nature of the ASX, with many large super funds chasing a relatively small pool of companies, can lead to extreme valuation dislocations, which can muddy the picture when making an investment decision.
For example, Aristocrat's 29x P/E multiple (based on Refinitiv data) far exceeds its global peers. This has been the case for such a long time that, in my view, this was a key reason why Nasdaq-listed Light & Wonder Inc (ASX: LNW) obtained a secondary listing on the ASX back in 2023. According to the AFR, it might even drop its Nasdaq listing later this year in favour of a single listing on the ASX.
Foolish Takeaway
Don't underestimate the ASX. There are many opportunities sitting right in front of our eyes, and with a little bit of research and analysis, we can uncover those opportunities. We certainly want to do it before Wall Street catches on.
