Churchill Downs Incorporated's (NASDAQ:CHDN) Share Price Matching Investor Opinion

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider Churchill Downs Incorporated (NASDAQ:CHDN) as a stock to potentially avoid with its 24.6x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Churchill Downs certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Churchill Downs

Keen to find out how analysts think Churchill Downs' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Churchill Downs' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Churchill Downs' is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 15% gain to the company's bottom line. The latest three year period has also seen an excellent 113% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 15% per annum over the next three years. With the market only predicted to deliver 10% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Churchill Downs is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Churchill Downs maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Churchill Downs, and understanding should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.