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Does Aristocrat Leisure Limited's (ASX:ALL) 29% Earnings Growth Reflect The Long-Term Trend?

Simply Wall St

Measuring Aristocrat Leisure Limited's (ASX:ALL) track record of past performance is a valuable exercise for investors. It allows us to understand whether or not the company has met or exceed expectations, which is an insightful signal for future performance. Today I will assess ALL's recent performance announced on 30 September 2019 and compare these figures to its historical trend and industry movements.

See our latest analysis for Aristocrat Leisure

Did ALL's recent earnings growth beat the long-term trend and the industry?

ALL's trailing twelve-month earnings (from 30 September 2019) of AU$699m has jumped 29% compared to the previous year.

However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 30%, indicating the rate at which ALL is growing has slowed down. What could be happening here? Well, let's look at what's transpiring with margins and whether the entire industry is facing the same headwind.

ASX:ALL Income Statement, December 11th 2019

In terms of returns from investment, Aristocrat Leisure has invested its equity funds well leading to a 33% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 13% exceeds the AU Hospitality industry of 7.6%, indicating Aristocrat Leisure has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Aristocrat Leisure’s debt level, has declined over the past 3 years from 24% to 22%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 16% to 133% over the past 5 years.

What does this mean?

Though Aristocrat Leisure's past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? You should continue to research Aristocrat Leisure to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ALL’s future growth? Take a look at our free research report of analyst consensus for ALL’s outlook.
  2. Financial Health: Are ALL’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 September 2019. This may not be consistent with full year annual report figures.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.