With a price-to-sales (or "P/S") ratio of 0.8x PlayAGS, Inc. (NYSE:AGS) may be sending bullish signals at the moment, given that almost half of all the Hospitality companies in the United States have P/S ratios greater than 1.7x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for PlayAGS

How Has PlayAGS Performed Recently?

PlayAGS could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Keen to find out how analysts think PlayAGS' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For PlayAGS?

The only time you'd be truly comfortable seeing a P/S as low as PlayAGS' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. Still, revenue has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 4.4% each year as estimated by the eight analysts watching the company. That's shaping up to be materially lower than the 17% each year growth forecast for the broader industry.

With this information, we can see why PlayAGS is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From PlayAGS' P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of PlayAGS' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

It is also worth noting that we have found 1 warning sign for PlayAGS that you need to take into consideration.

If these risks are making you reconsider your opinion on PlayAGS, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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