In September 2018, Aristocrat Leisure Limited (ASX:ALL) announced its most recent earnings update, which suggested that the business gained from a small tailwind, eventuating to a single-digit earnings growth of 9.6%. Below is my commentary, albeit very simple and high-level, on how market analysts view Aristocrat Leisure’s earnings growth outlook over the next few years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
Analysts’ expectations for next year seems positive, with earnings climbing by a robust 40%. This growth seems to continue into the following year with rates reaching double digit 62% compared to today’s earnings, and finally hitting AU$983m by 2021.
Although it is informative understanding the growth year by year relative to today’s figure, it may be more beneficial analyzing the rate at which the earnings are moving every year, on average. The benefit of this method is that we can get a better picture of the direction of Aristocrat Leisure’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute this rate, I’ve inserted a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 16%. This means that, we can presume Aristocrat Leisure will grow its earnings by 16% every year for the next couple of years.
For Aristocrat Leisure, there are three fundamental aspects you should further research:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is ALL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ALL is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of ALL? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.