Dave & Buster’s Entertainment Inc (NASDAQ:PLAY) is an iconic American restaurant, bar, and arcade. This fusion of experiences made it a long-time destination for gatherings, events, and socializing among coworkers, clients, family, and friends.
But the lockdowns destroyed a lot of brick-and-mortar businesses, so can Dave & Buster’s be the exception to the rule? Is PLAY stock a buy?
Although it crashed for most of 2020, the company recovered to pre-pandemic trading levels by the next year. That leaves a rocky road for investors who haven’t seen much growth in the past four years. It struggled to maintain a $2 billion market cap even before Covid-19 rocked the world.
Rival GameWorks largely disappeared outside of Las Vegas, with only six venues in North America. It focuses heavily on esports these days, while Dave & Buster’s expanded to become an arcade-themed sports bar and grill.
Will Dave & Buster’s give investors a high score or leave portfolios facing a kill screen?
What Does Dave & Buster’s Do?
Dave & Buster’s is an entertainment venue chain that merges a full-service restaurant with an arcade. It was founded by David Corriveau and James “Buster” Corley in Dallas, Texas after the duo learned their respective businesses worked well together as a destination.
The company expanded to over 140 locations by 2021, which put it in a precarious position during the initial shutdowns. It still has over 110 locations standing, each equipped with state-of-the-art TVs, surround sound, games, and a full-service bar and grill.
Despite the concept failing at the turn of the millennium, there was a resurgence in the “bar arcade” in the late 2010s. The term “barcade” is trademarked, which is a hotly contested trademark. Dave & Buster’s has no such issues and stands as a brand by itself.
But how did Dave and Buster’s (PLAY) withstand Covid-19?
How Dave & Buster’s Survived the Pandemic
It’s easy to underestimate the power of fusing multiple businesses into a restaurant destination. Municipalities and retailers like Walmart (WMT) and Target (TGT) practice this, and each took traffic from traditional indoor malls. PLAY has a similar concept as an experiential place to be after work.
In 2020 though, the concept failed as people were restricted from moving about. Dave & Buster’s lost $1 billion in the first year of the pandemic, but it will come close to $1 billion in sales this year, according to forecasts.
The company earns over half its revenue from games, which is most unlike your typical restaurant. Although crippled by the effects of social guidelines and government mandates (it refinanced debt, furloughed staff, and worked hard to weather the storm), the company’s position as a destination made it a popular place to go out when the economy opened up.
Its financial history is rocky though, and that could continue to be turbulent moving forward.
Dave & Buster’s Financial Outlook
Dave & Buster’s reported a record second quarter followed by some company shakeups. CEO Brian Jenkins announced his retirement effective September 30 and remains as an advisor to interim CEO Kevin Sheehan through November 30.
This is after the company reported $377.6 million in quarterly revenue, which compares to $344.6 million in the comparable year ago quarter and $50.8 million during the worst of the global lockdowns.
Overall comparable store sales increased 3.6 percent over the same quarter in 2019. And the company launched its web platform and a new marketing strategy to hold its stake moving forward.
Management expects business to remain steady through year end. This assumes nothing world-changing happens between now and then.
Is Dave & Buster’s A Buy or Sell?
If you bought Dave & Buster’s stock at the low end of the trading range under $15.00 per share, you can comfortably sell it and take your profits. It’s unlikely to experience that type of growth again now that PLAY share price has recovered so substantially.
Buying Dave & Buster’s above a $2 billion valuation is a much more risky proposition. People still have an itch to go outside, but there are a lot of competitors in the market, and more competition pops up every day. Even Restoration Warehouse (RH) is transitioning its stores to experiential model with cafes and restaurants inside.
The transition to a new CEO adds to investors concerns too.
Dave & Buster’s Is No Gamestop Among Reddit “Apes”
Obviously changing leadership will affect the company in the short term. But it also signals its willingness to continue making whatever changes are necessary to stay in the game, so to speak. GameStop (NYSE:GME) caught fire with the retail market’s attention, but Dave & Buster’s hasn’t garnered the same traction.
Competition is fierce, too – GameWorks still exists, along with Barcade and the small businesses it eternally litigates. And there’s a strong rival in Top Golf, which is owned by Callaway. Expensive virtual reality equipment being integrated into each of these businesses makes it intriguing to the public.
Nothing guarantees Dave & Buster’s will grow to the top of the scoreboard without facing challengers.
Is Dave & Buster’s Stock A Buy? The Bottom Line
Dave & Buster’s is an American arcade, bar and grill chain that combines a lot of our favorite pastimes. Like the mall, it faced turbulence before “lockdown fever” revived people’s urge for destination outings. There’s reason to be concerned about how long that resurgence in popularity will last though, especially with strong competition coming from so many angles.
As far as the industry goes, Dave & Buster’s in a relatively strong financial position. It transitions to new leadership with solid books and an optimistic future.
The upside lies at $50 per share based on a discounted cash flow forecast analysis, suggesting upside even for investors buying in today.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.