Stock Analysis

Caesars Entertainment, Inc.'s (NASDAQ:CZR) Prospects Need A Boost To Lift Shares

NasdaqGS:CZR
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Caesars Entertainment, Inc.'s (NASDAQ:CZR) price-to-sales (or "P/S") ratio of 0.9x might make it look like a buy right now compared to the Hospitality industry in the United States, where around half of the companies have P/S ratios above 1.5x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Caesars Entertainment

ps-multiple-vs-industry
NasdaqGS:CZR Price to Sales Ratio vs Industry June 15th 2023

How Has Caesars Entertainment Performed Recently?

With revenue growth that's inferior to most other companies of late, Caesars Entertainment has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Caesars Entertainment will help you uncover what's on the horizon.

How Is Caesars Entertainment's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Caesars Entertainment's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. While this performance is only fair, the company was still able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 3.7% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 17% each year growth forecast for the broader industry.

In light of this, it's understandable that Caesars Entertainment's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Caesars Entertainment's P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Caesars Entertainment maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Caesars Entertainment with six simple checks will allow you to discover any risks that could be an issue.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Valuation is complex, but we're helping make it simple.

Find out whether Caesars Entertainment is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.