With a median price-to-sales (or "P/S") ratio of close to 1.4x in the Hospitality industry in the United States, you could be forgiven for feeling indifferent about Caesars Entertainment, Inc.'s (NASDAQ:CZR) P/S ratio of 0.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Caesars Entertainment

What Does Caesars Entertainment's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Caesars Entertainment has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Some Revenue Growth Forecasted For Caesars Entertainment?

The only time you'd be comfortable seeing a P/S like Caesars Entertainment's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 8.8% gain to the company's revenues. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, even though the last 12 months were fairly tame in comparison. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 3.6% each year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 13% per year, which is noticeably more attractive.

With this in mind, we find it intriguing that Caesars Entertainment's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. 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 Caesars Entertainment's 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 Caesars Entertainment's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 3 warning signs for Caesars Entertainment (2 are potentially serious!) that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.