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Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Aristocrat Leisure (ASX:ALL). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Aristocrat Leisure with the means to add long-term value to shareholders.
Check out our latest analysis for Aristocrat Leisure
How Fast Is Aristocrat Leisure Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. To the delight of shareholders, Aristocrat Leisure has achieved impressive annual EPS growth of 54%, compound, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.
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. The good news is that Aristocrat Leisure is growing revenues, and EBIT margins improved by 2.2 percentage points to 28%, over the last year. That's great to see, on both counts.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Aristocrat Leisure?
Are Aristocrat Leisure Insiders Aligned With All Shareholders?
Owing to the size of Aristocrat Leisure, we wouldn't expect insiders to hold a significant proportion of the company. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. To be specific, they have AU$57m worth of shares. This considerable investment should help drive long-term value in the business. Despite being just 0.1% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.