Why the Aristocrat Leisure Limited (ASX:ALL) share price has tumbled lower today

The Aristocrat Leisure Limited (ASX:ALL) share price has tumbled lower following the release of its full year results this morning. Should you buy the dip?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

In morning trade the Aristocrat Leisure Limited (ASX: ALL) share price has dropped lower following the release of its full year results.

At the time of writing the gaming technology company's shares are down 4% to $25.00.

What happened in FY 2018?

In FY 2018 Aristocrat Leisure delivered a 47.7% increase in normalised operating revenue to $3,624.1 million and a 34.3% lift in normalised net profit after tax and before amortisation of acquired intangibles (NPATA) to $729.6 million.

Although this was impressive year on year growth, it was a touch lower than market expectations. According to a note out of Goldman Sachs, its analysts were expecting a full year net profit of $750 million and the Bloomberg consensus median estimate stood at $759 million.

Management advised that this result reflected the "strong performance delivered across the Group's global portfolio, including profit growth of 16% in the Americas land-based business (to US$650m), a 9% lift in profit in the market-leading ANZ business (to $207m) and transformational profit growth of over 170% (to US$331m) in the Digital business, with sustained organic growth supported by acquisitions."

Profits didn't grow quite as quickly as its top line this year due to the company experiencing a higher contribution from lower margin Digital social casual games and continued reinvestment in the business through its higher design and development spend.

Regardless of this, the company is still generating significant cash flows. Management advised that normalised for acquisition related significant items, its operating cash flow increased over 23% to $988 million.

Why are its shares lower?

I suspect the majority of the selling is down to the outlook that it provided for FY 2019.

Management advised that it anticipates continued growth next year. However, it has warned that earnings are expected to be skewed to the second half. This reflects the timing of digital game releases and corresponding UA investment.

Should you invest?

Normalised earnings per share came in 34% higher at 114.1 cents in FY 2018, meaning its shares are priced at 22x earnings currently. I think this is undemanding for a company that has such a positive long-term growth outlook.

Though, it might be worth letting the dust settle on this result before picking up shares.

But when it does, I think it could be a great long-term investment ahead of gaming and gambling companies such as Ainsworth Game Technology Limited (ASX: AGI) Crown Resorts Ltd (ASX: CWN), and SKYCITY Entertainment Group Limited (ASX: SKC).

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. The Motley Fool Australia has recommended Sky City Entertainment Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Fallers

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why EML, GQG Partners, IGO, and Integrated Research shares are sinking today

In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to record a strong gain. At the time of…

Read more »

A woman with short brown hair and wearing a yellow top looks at the camera with a puzzled and shocked look on her face as the Westpac share price goes down for no reason today
Share Fallers

Why Bellevue Gold, Mesoblast, Pilbara Minerals, and Wesfarmers shares are dropping today

These shares are ending the week deep in the red. What's going on?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why AGL, CBA, Deep Yellow, and Megaport shares are sinking today

These shares are falling more than most today. What's going on?

Read more »

A wide-eyed man peers out from a small gap in his black zipped jumper conveying fear over the weak Zip share price
BNPL shares

Why did the Zip share price just crash 9%?

Investors seem to be singling Zip out for punishment today...

Read more »

a woman holds her hands to her temples as she sits in front of a computer screen with a concerned look on her face.
Share Fallers

Why Capricorn Metals, Insignia, Sayona Mining, and Southern Cross Gold shares are falling today

These shares are having a tough time on hump day. But why?

Read more »

Three guys in shirts and ties give the thumbs down.
Share Fallers

Why Data#3, Elders, Karoon Energy, and Tyro shares are falling today

These shares are having a tough session on Tuesday. But why?

Read more »

A man in a suit looks sad as oil is spilled from a barrel.
Energy Shares

This $1 billion ASX 200 energy stock is diving 7%! Here's why

This ASX energy company is taking a beating on Tuesday. But why?

Read more »

A man looking at his laptop and thinking.
Technology Shares

Why did the Appen share price crash 15% today?

Appen shares remain up more than 250% this year.

Read more »