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.
Let’s talk profits
Annual reports and income statements can be very complex and hard to get your head around as a new investor. While there are any number of figures you could pull from the income statement, three key ones are revenue, gross margin, and profit.
Revenue is sometimes referred to as the ‘top line’ – everything starts here. If you can’t generate revenue, you can’t generate profit. What we’re interested in is not so much the absolute number, but the trend. ALL last reported an annual revenue of $6,485m with a compound annual growth rate (CAGR) over the last 3 years of 11.0% per year.
Gross margin is the next big number on the income statement. The gross margin tells us how profitable the core products/services are – before you take into account all the overhead costs, how much money does the company make from selling $100 worth of goods/services? ALL’s latest reported gross margin was 58.0%.
Finally, the number we’re most interested in – profit. Last financial year Aristocrat Leisure Limited reported a profit of $1,512m. That compares to 3 years ago when they made a profit of $1,378m, representing a CAGR of 3.2%.
A pulse check on ALL shares
The next thing we need to consider is the capital health of the company. Is the company generating a reasonable return on their equity (the total shareholder value) and do they have a decent safety buffer? One measure we can look at is net debt. This is simply the total debt minus the company’s cash holdings.
In the case of Aristocrat Leisure Limited, the current net debt sits at -$70m. High net debt can mean higher interest payments, greater instability, and higher sensitivity to interest rates. A negative value on the other hand indicates the company has more cash than debt – a good position to be in.
Another figure we can look at is the debt/equity percentage. This tells us how much debt the company has relative to shareholder equity. In other words, how leveraged is the company? ALL has a debt/equity ratio of 39.9%, which means they have more equity than debt.
Finally, we can look at the return on equity (ROE). The ROE tells us how much profit a company is generating as a percentage of its total equity – high numbers indicate the company is generating a lot of value for investors, while a low number raises concerns that capital isn’t necessarily being allocated efficiently. ALL generated an ROE of 22.8% in FY24.
What to make of ALL shares?
With strong revenue growth over the last 3 years, profits trending upwards, and a solid ROE, the ALL share price could be one worth watching in 2025.
Please keep in mind this should only be the beginning of your research. It’s important to get a good grasp of the company’s financials and compare it to its peers. It’s also important to make sure the company is priced fairly. To learn more about share price valuation, you can sign up for one of our many free online investing courses.
