In This Article:
With a price-to-earnings (or "P/E") ratio of 65.7x Monarch Casino & Resort, Inc. (NASDAQ:MCRI) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 19x and even P/E's lower than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
Monarch Casino & Resort has been struggling lately as its earnings have declined faster 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for Monarch Casino & Resort
Want the full picture on analyst estimates for the company? Then our free report on Monarch Casino & Resort will help you uncover what's on the horizon.
Does Growth Match The High P/E?
Monarch Casino & Resort's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 62%. The last three years don't look nice either as the company has shrunk EPS by 52% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 63% per year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 13% per annum, which is noticeably less attractive.
With this information, we can see why Monarch Casino & Resort is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Bottom Line On Monarch Casino & Resort's P/E
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.
We've established that Monarch Casino & Resort maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.