PENN Entertainment, Inc.'s (NASDAQ:PENN) Business And Shares Still Trailing The Industry

When close to half the companies operating in the Hospitality industry in the United States have price-to-sales ratios (or "P/S") above 1.3x, you may consider PENN Entertainment, Inc. (NASDAQ:PENN) as an attractive investment with its 0.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for PENN Entertainment

What Does PENN Entertainment's P/S Mean For Shareholders?

PENN Entertainment could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For PENN Entertainment?

The only time you'd be truly comfortable seeing a P/S as low as PENN Entertainment's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Still, the latest three year period has seen an excellent 78% overall rise in revenue, in spite of its uninspiring short-term performance. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Turning to the outlook, the next three years should generate growth of 6.4% per annum as estimated by the analysts watching the company. That's shaping up to be materially lower than the 11% per annum growth forecast for the broader industry.

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 Bottom Line On PENN Entertainment's P/S

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.

We've established that PENN Entertainment maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising 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 PENN Entertainment, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on PENN Entertainment, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.