Come Play With Us At Dave & Buster's

Summary

  • We've traded Dave & Buster's stock several times in two years and most recently issued a trade alert Tuesday evening at BAD BEAT Investing if it hit a $37 handle.
  • Despite headwinds which justified selling, shares have fallen nearly 50% from their 2017 highs despite several fundamental strengths of the company and continued annual growth.
  • New 17K concept stores are an important new approach and we believe a further refinement of the dining segment could boost repeat business.
  • Management has previously underpromised and overdelivered.
  • At under 15 times forward earnings with a healthy share repurchase authorization, it's not only a trade, it's an investment.

We have been in and out of Dave & Buster's (NASDAQ:NASDAQ:PLAY) stock numerous times in the last two years after our very first visit to this cash cow of a concept restaurant at the end of 2015. However, this growth stock has been crushed recently, somewhat justifiably, after it experienced a reduction in expected sales and earnings in the second half of 2017. While some of this is certainly justifiable, we believe shares have fallen too far, too fast.

We issued a BAD BEAT trade alert on the name in the $37 range last night based on technical alone, but in this column, we seek to back it up with a fundamental discussion of what is happening. It is our belief that although the company is experiencing headwinds, it is still in growth mode and is now attractively priced for reentry into the stock. Let us discuss.

Price action suggests a dud

First, you would think the name put out a dud of a quarter with its just reported earnings given the after hour and pre-market action in the stock, with shares down well over 7% in extended trading, and down into the $37 range on the open market at the time of this writing.

While the quarter will be digested over the next few days, initial reaction is indeed quite negative. Do the many articles that have espoused a long thesis in the last few months change with these numbers? In our opinion, the quarter was far stronger than the Street is giving the name credit for and guidance was a bit of a sandbag job by management, implying they may be underpromising so they can over-deliver.

Sales

In the company's just reported Q4 2017, we actually saw some records made. First, the sales numbers. Total revenues increased a strong 14.9%. They came in

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This article was written by

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Disclosure: I am/we are long PLAY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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