I believe Aristocrat Leisure Limited (ASX: ALL) shares are one of this week's great investing opportunities. The company provides systems, machinery and platforms for games of chance. It operates in many markets including the US and Asia. In addition, it has been announced it will be included in the S&P/ASX 20 (INDEXASX: XTL) from 22 June.
For years I associated Aristocrat shares purely with poker machines. Although today their product and service offering now far exceeds that narrow revenue stream. I think Aristocrat shares are a very good buy at the current price, and the following 3 numbers are important for any would-be investor.
Sales growth rates
It is wise to analyse companies over a reasonable period of time, in most cases, this is between 5 – 10 years. Aristocrat has grown the company's sales approximately 20% per year on average over a 10-year period. This means the company has developed new revenue streams and entered new markets while sustaining high levels of sales growth. It speaks volumes about its market knowledge and trust within the industry and gives me more confidence in Aristocrat shares.
Return on equity
Return on equity (ROE) is also called return on net assets (RONA) because it is the net income of the company divided by its net assets. In other words, how effectively the company uses its assets to create profits. It is a good all-round indicator of the financial management of the company.
Aristocrat has averaged an ROE of 28% over 10 years; an outstanding result in my view. In comparison, gigantic miner Rio Tinto Limited (ASX: RIO) is an asset-intensive company. It mines one of the world's most profitable commodities. Yet Rio has a lower 10-year average ROE of 21.9.
Cash flow growth rate
Cash flow is the ability of a company to generate cash or cash equivalents. In my view, this is the most fundamental capability any company needs to generate value for investors. Free cash flow means a company can reinvest in itself, reduce future debt or return cash to investors via dividends.
Aristocrat has been able to grow its free cash at an average rate of 29.1% per year over 9 years. Understanding this helps to understand the company's ability to drive the two figures.
Foolish takeaway
I think the coronavirus lockdown has presented investors with a unique chance to buy Aristocrat shares at a low entry price point. Today it is selling at a price-to-earnings ratio (P/E) of 9.9. This is more than 50% lower than its 10-year average P/E of 23.
With good results in sales, ROE and cash flow, the company appears well managed. In addition, it will be in the ASX 20 on 22 June. I have a sneaking suspicion it is going to have better than expected full-year results due to increased online gambling.
