Aristocrat downgraded to sell
Recommendation
The latest market downturn has been knocking stocks about, but Aristocrat Leisure continues serenely on its way. The stock is now up 28% this year and 11% since we reported on Aristocrat's acquisition of Video Gaming Technologies (VGT) in Odell bets his reputation on 14 Jul 14 (Hold – $5.40).
How you've done out of the stock will depend on when, or if, you followed our recommendations. You'll have doubled your money in short order if you followed our most recent upgrade on 2 Jul 12 (Long Term Buy – $2.45) or trebled it if you bought in after Aristocrat's turnaround jackpot on 28 Sep 11 (Speculative Buy – $1.98). But if you followed our recommendation in Aristocrat spins the reels on 16 Jun 08 (Long Term Buy – $6.76) you would've only got your money back after dividends.
All that, as they say though, is water under the bridge. What matters is what to do now. The VGT acquisition certainly has its attractions, as we outlined in our review on 14 Jul 14, but the debt taken on to fund it has increased the risks. Plenty of upside is also now priced in, with the stock on a multiple of 28 times the 2014 earnings per share expected to be reported next month. That comes down to 21 times for 2015, helped by the inclusion of a full-year of VGT, but it doesn't allow much margin of safety. With the stock nudging past our Sell trigger, therefore, we're inclined not to be greedy and we're selling the holding in our Growth Portfolio and downgrading to SELL.
Note: We're selling the 1,500 shares in our model Growth Portfolio at $6.03, for total proceeds of $9,045.