Getting In Cheap On PlayAGS, Inc. (NYSE:AGS) Is Unlikely
With a median price-to-sales (or "P/S") ratio of close to 1.3x in the Hospitality industry in the United States, you could be forgiven for feeling indifferent about PlayAGS, Inc.'s (NYSE:AGS) P/S ratio of 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
Check out our latest analysis for PlayAGS
How Has PlayAGS Performed Recently?
Recent times haven't been great for PlayAGS as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on PlayAGS will help you uncover what's on the horizon.
Is There Some Revenue Growth Forecasted For PlayAGS?
PlayAGS' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Taking a look back first, we see that the company grew revenue by an impressive 16% last year. Pleasingly, revenue has also lifted 74% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Looking ahead now, revenue is anticipated to climb by 4.8% during the coming year according to the five analysts following the company. That's shaping up to be materially lower than the 17% growth forecast for the broader industry.
With this information, we find it interesting that PlayAGS is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.
What We Can Learn From PlayAGS' P/S?
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
Our look at the analysts forecasts of PlayAGS' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for PlayAGS (1 makes us a bit uncomfortable) you should be aware of.
If you're unsure about the strength of PlayAGS' 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.