What Does Churchill Downs Incorporated's (NASDAQ:CHDN) Share Price Indicate?

Churchill Downs Incorporated (NASDAQ:CHDN), is not the largest company out there, but it received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$136 at one point, and dropping to the lows of US$115. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Churchill Downs' current trading price of US$119 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Churchill Downs’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Churchill Downs

Is Churchill Downs Still Cheap?

According to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Churchill Downs’s ratio of 24.63x is above its peer average of 19.54x, which suggests the stock is trading at a higher price compared to the Hospitality industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Churchill Downs’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Churchill Downs?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 37% over the next couple of years, the future seems bright for Churchill Downs. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in CHDN’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe CHDN should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on CHDN for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for CHDN, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Churchill Downs as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Churchill Downs (of which 1 can't be ignored!) you should know about.

If you are no longer interested in Churchill Downs, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.