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1 easy way to value the ALL share price

Is the Aristocrat Leisure Limited (ASX:ALL) share price cheap? Here are 3 reasons you might want to consider ALL shares.
The Aristocrat Leisure Limited (ASX:ALL) share price has jumped 50.2% since the start of 2024. Is it time that you added ALL shares to your watchlist?

ALL share price in focus

Founded by Len Ainsworth in 1953, Aristocrat Leisure is an Australian gambling machine operator that is headquartered in Sydney.

Aristocrat is currently the largest gambling machine manufacturer in Australia and one of the largest manufacturers of slot machines around the world. However, that’s just one part of the business. Aristocrat also makes online games. This segment has grown steadily to make up nearly half its total revenue.

Gaming machines can be sold outright to a venue or gaming operator. Alternatively, a machine can be installed with a proportion of the revenue generated being paid on a recurring basis back to Aristocrat.

The case for ASX tech shares

The S&P/ASX200 Info Tech Index (ASX: XIJ) has returned 14.42% per year over the last 5 years. That compares to the average of all ASX sectors of 3.45% over the same period. So, here are some of the reasons that investors have been flocking to ASX tech shares.

High Margins

Technology companies tend to have much better margins than more ‘traditional’ brick-and-mortar businesses. That is, they tend to be more profitable.

The simple reason is that they usually have low marginal costs (like distribution costs) and low overhead costs (things like plant and equipment).

In their last annual report, ALL reported gross margins of 58.00% and an operating margin of 27.90%.

Recurring revenue

The second reason is that a feature of many tech companies is their recurring revenue. You’ve probably heard the term ‘software-as-a-service’ (SaaS) – this is when companies package their software as a service that customers pay for access to on a monthly or annual basis.

This is a great alternative to selling your software as a product (a one-off payment) because it can smooth revenue across the year and make profits more predictable over time.

Global scale

The third reason investors love tech businesses is because of their global reach. If you have a brick-and-mortar business or sell physical products, your potential customer base can be limited by reach, regulation, or logistics. For example, if you sell food items, trying to sell into a foreign market means dealing with packaging rules, biosecurity regulations, and tariffs or quotas.

Software on the other hand can usually be downloaded by anyone with an internet connection at the click of a button. It’s easy to ‘move’ across borders, opening up markets that may not have been available to a product-based business. Basically, a bigger customer pool tends to mean more customers.

ALL share price valuation

As a growth company, one way to put a broad estimate on the ALL share price could be to compare its price-to-sales multiple over time. Currently, Aristocrat Leisure Limited shares have a price-sales ratio of 5.97x, compared to its 5-year average of 4.87x, meaning its shares are trading higher than their historical average. This could mean that the share price has increased, or that sales have declined. In the case of ALL, revenue has been growing over the last 3 years.

Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.

The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the ALL share price.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

So how do the best investors do it?

Chief Investment Officer Owen Rask has just released his passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

You can INSTANTLY access Owen’s report for FREE by CLICKING HERE NOW and creating a 100% FREE Rask Account.

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5%+ in passive income

Owen Rask’s investing report available

With bond ETFs like ASX:IAF and the S&P 500 riding high, now could be one of the best times to start earning passive income from a portfolio of shares and ETFs.

In this free analyst report, our Chief Investment Officer, Owen Rask, names 10 ASX stocks and ETFs to watch.

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

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