Insufficient Growth At PENN Entertainment, Inc. (NASDAQ:PENN) Hampers Share Price

With a price-to-sales (or "P/S") ratio of 0.5x PENN Entertainment, Inc. (NASDAQ:PENN) may be sending bullish signals at the moment, given that almost half of all the Hospitality companies in the United States have P/S ratios greater than 1.5x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for PENN Entertainment

What Does PENN Entertainment's Recent Performance Look Like?

While the industry has experienced revenue growth lately, PENN Entertainment's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on PENN Entertainment.

How Is PENN Entertainment's Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.2%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 26% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to climb by 6.7% per annum during the coming three years according to the analysts following the company. With the industry predicted to deliver 12% growth per annum, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why PENN Entertainment's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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

As expected, our analysis of PENN Entertainment's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for PENN Entertainment with six simple checks.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.