Aristocrat: Who Likes Playing Poker?
November 21st 2006 12:12
If you, dear reader, like playing the poker, would you buy Aristocrat?
The news today, 21 November 2006, is that analysts believe Aristocrat Leisure will grow steadily for the next three years. Goldman Sachs JBWere sees Aristocrat’s growth as “very solid” expecting 20 per cent EPS growth for the next three years.
The analysts are especially optimistic about the prospects in Macau where Wynn Macau, Sands Macau and Galaxy Starworld can be found.
Aristocrat expects its poker machines for 2008 to reach 8750. In addition, Las Vegas Sands expects its poker machines in Macau to leap from 7000 to 16,000.
Goldman expects Aristocrat’s net profit for 2007 to be up by 5.5 per cent to $339.1 million.
This news was published in the online version of The Australian, www.theaustralian.com.au, under the title “Aristocrat Leisure’s outlook on a roll” and was written by Katherine Jimenez. Click here to open this page: http://www.theaustralian.news.com.au/story/0,20867,20792426-643,00.html.
Aristocrat Leisure (ASX: ALL) is such a great poker machine manufacturing enterprise that, if I could, I would buy it. My problem is: I do not gamble.
ALL produces the best poker machines available, though, and its only rival in the US is International Game Technology.
Aristocrat went through an interesting story in 2003: it lost two contracts in the Americas and its share price fell from around $5.00 to 40 cents. Then bounced back to $1.00 and stayed there for six months.
I realised that this was one more irrational reaction of the market.
ALL was intact in its strong franchise, it had other contracts, it had cash flow and could try to sell elsewhere.
As it happened, by the end of 2003 its price jumped to $9.00, then $11.00 and later on $13.00. It’s now $15.09.
If you had put $2000 in ALL at $1.00 you would have now $38,180 for an investment return of 167 per cent!! Not bad at all.
Unfortunately for me, due to circumstances at the time, I had not a dime left in my pocket and just watched this opportunity go.
Today ALL is vastly overvalued, a sign of its prosperity: its P/E is a hefty 29.5 times. In comparison with bond values, it almost doubles its fair value (capitalisation: $7,099.845, bond value equivalent: $3,908.8).
And if you think that past performance, especially when consistent, predicts future performance, then consider that EPS in the last 5 yeas grew by 27 per cent and that that projects it to 169.56 cents by 2011.
If you then multiply this projected EPS value by the historical average P/E of 25 times you will get a share price of $42.40, an increase of almost three fold or a compounded return of 23 per cent.
How much do you get from a bank deposit? Six per cent or so, isn’t it?
Problem is: at current multiples ALL’s price could fall abruptly.
End
The news today, 21 November 2006, is that analysts believe Aristocrat Leisure will grow steadily for the next three years. Goldman Sachs JBWere sees Aristocrat’s growth as “very solid” expecting 20 per cent EPS growth for the next three years.
The analysts are especially optimistic about the prospects in Macau where Wynn Macau, Sands Macau and Galaxy Starworld can be found.
Aristocrat expects its poker machines for 2008 to reach 8750. In addition, Las Vegas Sands expects its poker machines in Macau to leap from 7000 to 16,000.
Goldman expects Aristocrat’s net profit for 2007 to be up by 5.5 per cent to $339.1 million.
This news was published in the online version of The Australian, www.theaustralian.com.au, under the title “Aristocrat Leisure’s outlook on a roll” and was written by Katherine Jimenez. Click here to open this page: http://www.theaustralian.news.com.au/story/0,20867,20792426-643,00.html.
Aristocrat Leisure (ASX: ALL) is such a great poker machine manufacturing enterprise that, if I could, I would buy it. My problem is: I do not gamble.
ALL produces the best poker machines available, though, and its only rival in the US is International Game Technology.
Aristocrat went through an interesting story in 2003: it lost two contracts in the Americas and its share price fell from around $5.00 to 40 cents. Then bounced back to $1.00 and stayed there for six months.
I realised that this was one more irrational reaction of the market.
ALL was intact in its strong franchise, it had other contracts, it had cash flow and could try to sell elsewhere.
As it happened, by the end of 2003 its price jumped to $9.00, then $11.00 and later on $13.00. It’s now $15.09.
If you had put $2000 in ALL at $1.00 you would have now $38,180 for an investment return of 167 per cent!! Not bad at all.
Unfortunately for me, due to circumstances at the time, I had not a dime left in my pocket and just watched this opportunity go.
Today ALL is vastly overvalued, a sign of its prosperity: its P/E is a hefty 29.5 times. In comparison with bond values, it almost doubles its fair value (capitalisation: $7,099.845, bond value equivalent: $3,908.8).
And if you think that past performance, especially when consistent, predicts future performance, then consider that EPS in the last 5 yeas grew by 27 per cent and that that projects it to 169.56 cents by 2011.
If you then multiply this projected EPS value by the historical average P/E of 25 times you will get a share price of $42.40, an increase of almost three fold or a compounded return of 23 per cent.
How much do you get from a bank deposit? Six per cent or so, isn’t it?
Problem is: at current multiples ALL’s price could fall abruptly.
End
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