Put Traders Move In On Dave & Buster's Stock Before Earnings

PLAY has traded lower after earnings in three of the past four quarters

Managing Editor
Apr 2, 2018 at 11:47 AM
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Although earnings season is basically over, restaurant name Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) will be reporting fiscal fourth-quarter earnings after the close tomorrow. If past is precedent, PLAY stock could be headed for a volatile post-earnings move. 

PLAY stock has had a negative earnings reaction in three of the last four quarters, while over the last eight quarters, the equity has averaged a 6.4% move the day after earnings, regardless of direction. This time around, the options market is pricing in a much larger-than-usual 14.9% one-day move, per Trade-Alert. A move of such magnitude lower again would put the stock near the $35 level for the first time since early 2016.

Ahead of tomorrow's event, Canaccord Genuity issued a price-target cut to $60 from $70. In response, PLAY stock is down 3.6% to trade at $40.25, fresh off an annual low of $40.14. Looking closer at the charts, today's dip for Dave & Buster's aligns with its longer-term trend. The shares have shed 27% in 2018 already, guided lower by their descending 30-day moving average since an early January bear gap. 

Despite its struggles, analysts remain staunchly supportive of the stock. All 10 of the brokerages covering PLAY rate it a "buy" or "strong buy." Furthermore, the security's average 12-month price target of $62.22 represents a more than 50% premium from the stock's current perch. In the event of another post-earnings skid, analysts may be forced to abandon their bullish posts.

In the options pits, puts have become more popular in recent weeks, despite low absolute volumes. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 1.22, which ranks in the elevated 81st percentile of its annual range.

Shifting gears to today, options volume has exploded. Over 5,800 options have changed hands, 16 times the average intraday pace, and volume is pacing for the 98th percentile of its annual range. The most popular option overall is the April 35 put, while the 40- and 45-strike puts from the same series are also seeing heavy trading.

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