ALL share price in focus
Founded by Len Ainsworth in 1953, Aristocrat Leisure is an Australian gambling machine operator that is headquartered in Sydney.
Currently, Aristocrat is the largest manufacturer of gambling machines in Australia and one of the world’s leading producers of slot machines. However, the company’s business extends beyond just physical machines; Aristocrat also develops online games, which have grown to contribute nearly half of its total revenue.
Aristocrat’s gaming machines can either be sold outright to venues or gaming operators or installed with a revenue-sharing model, where a portion of the earnings generated is paid back to Aristocrat on a recurring basis.
The appeal of ASX Consumer Discretionary shares
The S&P/ASX200 Consumer Discretionary Index (ASX: XDJ) has returned 7.33% per year over the last 5 years compared to 3.88% per year from the broader ASX 200. The consumer discretionary sector covers a broad range of goods and services, so it can be hard to compare companies in this group. However, here are a few things you might want to consider when investing in a consumer discretionary company like ALL.
Timing
Consumer discretionary companies usually have their best performance when interest rates are low. Just think about it – when rates are low, you’re more likely to go out and buy those ‘toys’ or things that you may not really need, but you certainly want. That could be new tech, travel, or your new power tools – it all comes under this category.
Despite the current high interest rate environment, ALL has still managed to grow revenue by 11.0% per year over the last three years.
Dividends
The dividends you’ll receive can vary with the current economic environment, but historically many of the big ASX consumer discretionary shares have been reliable dividend payers.
ALL offers a current dividend yield of 1.0% and over the last 5 years has averaged 1.1%.
Familiarity
We’re often advised to invest in what we know. Consumer discretionary shares may be a good fit then, as these tend to be companies that we see on a daily basis and their business model is easy to understand. You probably have a better idea how Aristocrat Leisure Ltd make their money then some niche tech company or a B2B industrials company.
This doesn’t necessarily mean performance will be any good, but they’re definitely easier to get your head around when you’re starting out investing.
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 Ltd shares have a price-sales ratio of 6.93x, 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.
