Accel Entertainment, Inc.'s (NYSE:ACEL) P/E Still Appears To Be Reasonable
When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider Accel Entertainment, Inc. (NYSE:ACEL) as a stock to potentially avoid with its 19.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.
Recent times haven't been advantageous for Accel Entertainment as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.
See our latest analysis for Accel Entertainment
Keen to find out how analysts think Accel Entertainment's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Enough Growth For Accel Entertainment?
The only time you'd be truly comfortable seeing a P/E as high as Accel Entertainment's is when the company's growth is on track to outshine the market.
Retrospectively, the last year delivered a frustrating 32% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Turning to the outlook, the next year should generate growth of 35% as estimated by the three analysts watching the company. With the market only predicted to deliver 10%, the company is positioned for a stronger earnings result.
With this information, we can see why Accel Entertainment is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As we suspected, our examination of Accel Entertainment's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
Before you take the next step, you should know about the 3 warning signs for Accel Entertainment that we have uncovered.
You might be able to find a better investment than Accel Entertainment. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
