If You Like EPS Growth Then Check Out Aristocrat Leisure (ASX:ALL) Before It's Too Late

By
Simply Wall St
Published
February 26, 2021
ASX:ALL

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

So if you're like me, you might be more interested in profitable, growing companies, like Aristocrat Leisure (ASX:ALL). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Aristocrat Leisure

Aristocrat Leisure's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. I, for one, am blown away by the fact that Aristocrat Leisure has grown EPS by 41% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. To cut to the chase Aristocrat Leisure's EBIT margins dropped last year, and so did its revenue. That will not make it easy to grow profits, to say the least.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
ASX:ALL Earnings and Revenue History February 26th 2021

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Aristocrat Leisure?

Are Aristocrat Leisure Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news for Aristocrat Leisure shareholders is that no insiders reported selling shares in the last year. So it's definitely nice that Independent Non-Executive Director Arlene Tansey bought AU$26k worth of shares at an average price of around AU$26.23.

Along with the insider buying, another encouraging sign for Aristocrat Leisure is that insiders, as a group, have a considerable shareholding. To be specific, they have AU$18m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.09% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Is Aristocrat Leisure Worth Keeping An Eye On?

Aristocrat Leisure's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. The cherry on top is that insiders own a bunch of shares, and one has been buying more. Because of the potential that it has reached an inflection point, I'd suggest Aristocrat Leisure belongs on the top of your watchlist. It is worth noting though that we have found 2 warning signs for Aristocrat Leisure (1 is a bit concerning!) that you need to take into consideration.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Aristocrat Leisure, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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