Investors Don't See Light At End Of Golden Entertainment, Inc.'s (NASDAQ:GDEN) Tunnel
When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 16x, you may consider Golden Entertainment, Inc. (NASDAQ:GDEN) as an attractive investment with its 11.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
Golden Entertainment's earnings growth of late has been pretty similar to most other companies. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.
Check out our latest analysis for Golden Entertainment
Keen to find out how analysts think Golden Entertainment's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Any Growth For Golden Entertainment?
The only time you'd be truly comfortable seeing a P/E as low as Golden Entertainment's is when the company's growth is on track to lag the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 17% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Looking ahead now, EPS is anticipated to slump, contracting by 0.6% per year during the coming three years according to the seven analysts following the company. Meanwhile, the broader market is forecast to expand by 9.8% per year, which paints a poor picture.
In light of this, it's understandable that Golden Entertainment's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
The Final Word
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 Golden Entertainment maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
Plus, you should also learn about this 1 warning sign we've spotted with Golden Entertainment.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).
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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.
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