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Dave & Buster's Entertainment is Up 26% YTD: Will it Continue to Rally?

Entertainment and dining venues operator Dave & Buster's (PLAY) stock generated solid momentum after the company reported impressive fourth-quarter results. But will the stock be able to maintain its momentum given PLAY’s low profitability and premium valuation? Read on. Let's find out.

Dave & Buster's Entertainment, Inc. (PLAY) in Dallas, Tex., owns and operates entertainment and dining venues for adults and families across North America. As of Jan. 30, 2022, the company owned and operated 144 stores located in 40 states, Puerto Rico, and one Canadian province.

The stock generated solid momentum after PLAY released impressive fourth-quarter results. It has gained 25.7% in price year-to-date. PLAY has benefited from its Amusement segment. Amusement and other revenues (which account for 65% of overall sales) increased 191.1% year-over-year to $223 million in the fourth quarter of its fiscal 2021.

However, on March 30, VP Michael Joseph Metzinger sold 2,226 shares of the company's stock. The stock was sold for $111,300.00 at an average price of $50.00 per share. The transaction was disclosed in an SEC filing.

Here is what could shape PLAY's performance in the near term:

Mixed Profitability

PLAY's 8.3% trailing-12-months net income margin is 26% higher than the 6.6% industry average. However, its 0.56% trailing-12-months asset turnover ratio is 47.4% lower than the 1.05% industry average. Also, its trailing-12-months ROA, gross profit margin and ROC are 24.3%, 13.1%, and 26.4%, lower than their respective industry averages.

Premium Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 15.22x, which is 16.9% higher than the 13.01x industry average. Also, its 2.52x forward EV/Sales is 113.1% higher than the 1.18x industry average. Also, PLAY's 7.49x forward Price/Book is 191.3% higher than the 2.57x  industry average.

POWR Ratings Reflect Uncertainty

PLAY has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PLAY has a D grade for Stability. The stock’s 1.87  beta  is consistent with the Stability grade.

Among  the 45 stocks in the B-rated Restaurants industry, PLAY is ranked #15.

Beyond what I have stated above, you can view PLAY ratings for Momentum, Growth, Quality, Value, and Sentiment here.

Bottom Line

The gradual relaxation of mask mandates and social distancing practices owing to a significant decline in COVID-19 cases is driving the performance of outdoor stocks. However, given that remote lifestyles have become a popular trend over the past couple of years, changing the operating structure of businesses could impact PLAY's expansion plans. In addition, given its low profitability and premium valuation, we believe investors should wait for a better entry point in the stock.

How Does Dave & Buster's Entertainment Inc. (PLAY) Stack Up Against its Peers?

While PLAY has an overall C rating, one might want to consider its industry peers, Good Times Restaurants Inc. (GTIM), Nathan's Famous Inc. (NATH), and The ONE Group Hospitality Inc. (STKS), which have an overall A (Strong Buy) rating.

PLAY shares were trading at $47.43 per share on Monday morning, down $0.84 (-1.74%). Year-to-date, PLAY has gained 23.52%, versus a -4.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.


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