Century Casinos, Inc. (NASDAQ:CNTY) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 55% share price decline over the last year.

Even after such a large jump in price, Century Casinos may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Hospitality industry in the United States have P/S ratios greater than 1.4x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Century Casinos' P/S Mean For Shareholders?

Recent times haven't been great for Century Casinos as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Do Revenue Forecasts Match The Low P/S Ratio?

Century Casinos' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 28% gain to the company's top line. The latest three year period has also seen an excellent 81% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 8.4% per annum during the coming three years according to the three analysts following the company. With the industry predicted to deliver 11% growth each year, the company is positioned for a weaker revenue result.

With this information, we can see why Century Casinos 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 Does Century Casinos' P/S Mean For Investors?

The latest share price surge wasn't enough to lift Century Casinos' P/S close to the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Century Casinos maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Century Casinos, and understanding these should be part of your investment process.

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

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