MGM Resorts International (NYSE:MGM) Screens Well But There Might Be A Catch

MGM Resorts International's (NYSE:MGM) price-to-earnings (or "P/E") ratio of 11.7x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 18x and even P/E's above 32x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

The end of cancer? These 15 emerging AI stocks are developing tech that will allow early identification of life changing diseases like cancer and Alzheimer's.

While the market has experienced earnings growth lately, MGM Resorts International's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for MGM Resorts International

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

Is There Any Growth For MGM Resorts International?

The only time you'd be truly comfortable seeing a P/E as low as MGM Resorts International's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 25% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 6.7% overall rise in EPS. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 12% per annum over the next three years. With the market predicted to deliver 11% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's peculiar that MGM Resorts International's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From MGM Resorts International's P/E?

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

We've established that MGM Resorts International currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You always need to take note of risks, for example - MGM Resorts International has 2 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than MGM Resorts International. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.