When you see that almost half of the companies in the Hospitality industry in the United States have price-to-sales ratios (or "P/S") above 1.3x, PENN Entertainment, Inc. (NASDAQ:PENN) looks to be giving off some buy signals with its 0.4x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How PENN Entertainment Has Been Performing

PENN Entertainment could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Is There Any Revenue Growth Forecasted For PENN Entertainment?

PENN Entertainment's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 3.3%. Still, the latest three year period has seen an excellent 68% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 6.8% per year over the next three years. With the industry predicted to deliver 12% growth per year, the company is positioned for a weaker revenue result.

With this information, we can see why PENN Entertainment is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From 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.

As we suspected, our examination of PENN Entertainment's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for PENN Entertainment with six simple checks on some of these key factors.

If you're unsure about the strength of PENN Entertainment's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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