It's not a stretch to say that Monarch Casino & Resort, Inc.'s (NASDAQ:MCRI) price-to-earnings (or "P/E") ratio of 16.6x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 17x.  Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.  

Recent times haven't been advantageous for Monarch Casino & Resort as its earnings have been falling quicker than most other companies.   It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling.  You'd much rather the company wasn't bleeding earnings if you still believe in the business.  If not, then existing shareholders may be a little nervous about the viability of the share price.    

NasdaqGS:MCRI Price to Earnings Ratio vs Industry March 14th 2024

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Monarch Casino & Resort.

Is There Some Growth For Monarch Casino & Resort?  

There's an inherent assumption that a company should be matching the market for P/E ratios like Monarch Casino & Resort's to be considered reasonable.  

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 7.0%.   Still, the latest three year period has seen an excellent 234% overall rise in EPS, in spite of its unsatisfying short-term performance.  Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.  

Looking ahead now, EPS is anticipated to climb by 1.0% per year during the coming three years according to the four analysts following the company.  That's shaping up to be materially lower than the 10% per year growth forecast for the broader market.

With this information, we find it interesting that Monarch Casino & Resort is trading at a fairly similar P/E to the market.  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 earnings growth is likely to weigh down the shares eventually.  

The Key Takeaway

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Monarch Casino & Resort currently trades on a higher than expected P/E since its forecast growth is lower than the wider market.  When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower.  This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for Monarch Casino & Resort that you need to be mindful of.  

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.