PENN Penn National Gaming, Inc

Sector financial performance:

This company, which primarily owns and operates gaming and racing facilities and as well video gaming terminal operation, has been grouped into casino sector in gambling industry.
It seems that demand, in US market, for casino and related service of companies in this sector, according to the typical company data, has been weak and slowed down in the past three years. It is probably a reflection in local economy of US as indicated by the fact that there are general decreases in mid-west, south, and mid-Atlantic regions but increase in west in the past several years.
Demand in Macau market started to take off after sluggish 2015 as indicated by some of typical company’s data (17-20% annual growth in revenue in 2017 and 2016).
While slow growth in US domestic, benefiting from cost saving and strong growth in Macau, the average gross margin, from the typical company data, seems to have been improved slightly. The current typical gross margin is about 37% in 2017. The typical operating margin is now at about 15% with a higher SG&A as percentage of sales of about 23% probably as a result of increased marketing spending.
The typical average stock Price/cash flow ratio is 37 ranging from 27 to 50.

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Company performance:

It seems that the demand for casino gaming service and related service of this company in USA and Canada in the past year has been stable and growing attributable to acquisition and natural growth. However, the trend of increasing seems to be slowing down in 2017 and in 2018.
The first three months of fiscal 2018 compared with the same period of 2017
Net sales (excluding reimbursement of management fees) increased 2.4%.
The fiscal 2017 compared with 2016
Net sales (excluding reimbursement of management fees) increased 3.4%.
the fiscal 2016 compared with 2015
Net sales (excluding reimbursement of management fees) increased 6.3%.
Its gross margin (including depreciation) has been flat at around 34% since 2014. And with flat SG&A as percentage of sales (around 16%), its operating margin has been at around 18%.

Stock price

This stock currently has a stock price/cash flow ratio of 36. We think that its stock is being relatively slightly overvalued considering that while its potential increase in revenue there is uncertainty in margin.

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