Accel Entertainment trades at $11.27 and has moved in lockstep with the market. Its shares have returned 5% over the last six months while the S&P 500 has gained 1.9%.
Is there a buying opportunity in Accel Entertainment, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Accel Entertainment Not Exciting?
We're cautious about Accel Entertainment. Here are three reasons why you should be careful with ACEL and a stock we'd rather own.
1. Weak Growth in Video Gaming Terminals Sold Points to Soft Demand
Revenue growth can be broken down into changes in price and volume (for companies like Accel Entertainment, our preferred volume metric is video gaming terminals sold). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Accel Entertainment’s video gaming terminals sold came in at 27,180 in the latest quarter, and over the last two years, averaged 6.8% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Accel Entertainment’s revenue to rise by 6.5%, a slight deceleration versus its 23.6% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will see some demand headwinds.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Accel Entertainment has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.4%, lousy for a consumer discretionary business.
Final Judgment
Accel Entertainment isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 12.2× forward P/E (or $11.27 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. Let us point you toward a top digital advertising platform riding the creator economy.
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