Getting In Cheap On Full House Resorts, Inc. (NASDAQ:FLL) Might Be Difficult

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 15x, you may consider Full House Resorts, Inc. (NASDAQ:FLL) as a stock to avoid entirely with its 43.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Full House Resorts could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Full House Resorts

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

How Is Full House Resorts' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Full House Resorts' is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 65%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 113% each year over the next three years. With the market only predicted to deliver 9.8% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Full House Resorts' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Full House Resorts' P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Full House Resorts' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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 3 warning signs with Full House Resorts (at least 1 which is significant), and understanding them should be part of your investment process.

You might be able to find a better investment than Full House Resorts. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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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.