Valuing ALL and STO: A straightforward earnings-based approach

Aristocrat Leisure (ALL) has risen 2.6% since the start of 2025. Santos (STO) trades about 21% above its 52-week low. For investors building a watchlist, the question is whether current prices reflect underlying earnings power.

A common starting point for Aristocrat is the price-to-earnings multiple. The stock has traded between 18 and 25 times earnings over the past five years. Consensus estimates for fiscal 2026 put forward P/E near 20, according to Refinitiv data. That sits in the middle of the historical range. A repeat of last year's margin expansion would push earnings higher and pull the multiple lower, making the stock cheaper on the same share price.

Santos requires a different measure. Oil and gas producers are best valued on enterprise value to EBITDA, because depreciation and tax distortions vary with production cycles. Santos's EV/EBITDA multiple stands at roughly 4.5 times, below its five-year average of 5.8 times. The discount reflects uncertainty around gas demand and carbon policy, analysts said. If liquefied natural gas prices hold above $10 per million BTU, Santos's EBITDA could exceed $8 billion this year. That would pull the multiple below 4 times, territory that has historically attracted takeover interest in the sector.

The valuation gap for Santos suggests a discount that could narrow if LNG prices stay elevated. For Aristocrat, the P/E sits in the middle of its range; a margin beat could compress it further. The Barossa gas project, which recently hit a production milestone, is a near-term cash flow catalyst for Santos. Aristocrat faces regulatory risk in key markets. Its earnings trajectory is more predictable given recurring gaming revenue, which provides a floor under the valuation.

For readers familiar with the BHP valuation framework, the same method – comparing current multiple to historical range and adjusting for the cycle – applies here. The same approach works for Santos on the commodity side.

Commodities analysis provides broader context on the energy complex that drives Santos's revenue. For Aristocrat, the gaming cycle is more idiosyncratic. The valuation discipline remains the same.

Aristocrat's half-year results are due in May. Santos reports quarterly production in April. Those prints will either confirm the current valuation or force a revision.