The Aristocrat Leisure Limited (ASX:ALL) share price has jumped 62.4% since the start of 2024. Is it time that you added ALL shares to your watchlist?
ALL share price in focus
Founded by Len Ainsworth in 1953, Aristocrat Leisure is an Australian gambling machine operator that is headquartered in Sydney.
Currently, Aristocrat is the largest manufacturer of gambling machines in Australia and one of the world’s leading producers of slot machines. However, the company’s business extends beyond just physical machines; Aristocrat also develops online games, which have grown to contribute nearly half of its total revenue.
Aristocrat’s gaming machines can either be sold outright to venues or gaming operators or installed with a revenue-sharing model, where a portion of the earnings generated is paid back to Aristocrat on a recurring basis.
The appeal of ASX tech shares
The S&P/ASX200 Info Tech Index (ASX: XIJ) has delivered an average annual return of 13.98% over the last 5 years, compared to the broader ASX 200’s 4.34% return. So, here’s why tech shares like ALL are drawing attention.
High Margins
Tech companies often boast better margins than more ‘traditional’ brick-and-mortar businesses. That is, they tend to be more profitable.
This is because they usually have low marginal costs and lower overheads (things like plant and equipment).
ALL’s latest annual report revealed gross margins of 58.00% and an operating margin of 27.90%.
Recurring revenue
Many tech businesses benefit from recurring revenue models like ‘software-as-a-service’ (SaaS). Compared to one-time product sales, this subscription-based approach generates consistent income, smooths revenue, and enhances predictability over time.
Global scale
Unlike physical businesses constrained by logistics, regulations, and trade wars, tech firms can often reach global markets with much less effort (and cost). By dealing in software accessible by something as simple as an internet connection, tech companies can quickly and efficiently increase their customer base.
ALL share price valuation
As a growth company, one way to put a broad estimate on the ALL share price could be to compare its price-to-sales multiple over time. Currently, Aristocrat Leisure Limited shares have a price-sales ratio of 6.45x, compared to its 5-year average of 4.87x, meaning its shares are trading higher than their historical average. This could mean that the share price has increased, or that sales have declined. In the case of ALL, revenue has been growing over the last 3 years.
Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the ALL share price.
