Is Dave & Buster's Stock the Right Play Right Now?

Digging into a complicated analysis of PLAY as an investor opportunity

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Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) is an entertainment and restaurant chain based out of Dallas, Texas. The company provides a full restaurant experience and a huge variety of arcade games but has been essentially in shambles since the market crash earlier this year. PLAY  bottomed out at $4.61 in March, and has not seen a significant bounce back like a lot of other stocks.

Although PLAY's current stock price around $15 is more than double its 52-week low, the stock had notched a 52-week high of $48.80 on Jan. 17, prior to the pandemic and shutdowns. PLAY stock is down over 60% year-over-year andin just the last 30 days has taken another whopping 20% haircut amid the very real investor concerns about potential bankruptcy. Does this present an opportunity for investors, though? Like Warren Buffet said, "(be) greedy when others are fearful."

Dave & Buster's has beat expectations in two of the last four quarters (fiscal first and third quarters of 2020), missing earnings in their fiscal second quarter and meeting expectations for their fiscal fourth quarter of 2019. D&B beat earnings expectations by $0.15 in their most recent quarterly financial report. The company's trailing twelve-month EPS (earnings per share) is -$2.18. D&B has a trailing price-earnings ratio of 40.95 and has no forward price-earnings ratio.

D&B has a current market cap of $732.49 million and a most recent quarter (MRQ) book value of 5.26 per share. The company's MRQ price/book value is 3.00. The company had increased its revenue consistently on an annual basis since 2017 until this year. In 2020, D&B is on track for a major decrease in total revenue. Putting the current year aside, D&B has maintained a positive net income for the last four years. The company's net income growth, though, has been fairly inconsistent in recent years.

Dave & Buster's currently holds $224.31 million in cash and $2.62 billion in total assets on its balance sheet. The company also totes $2.1 billion in debt and another $2.37 billion in total liabilities. On its balance sheet, D&B has a total equity of $250.37 million. While Dave & Buster's has paid dividends to investors in the past, the company is far from consistent with these payments. The last dividend payment made was in the first quarter of this year and the amount paid out was $0.16.

After diving deeper into the Dave & Buster's current situation, it seems that the opportunity with PLAY stock is incredibly complicated. The mandatory closure of operations earlier this year impacted revenues in a major way, which is to be expected. D&B will be relying on lenders to keep the company afloat, but this isn't just because of the coronavirus pandemic and its side effects. The company often chose to pay dividends to its investors instead of using the funds to strengthen a clearly weak balance sheet.

Further, Dave & Buster's small market cap could make lenders less likely to take on the risk. Even if D&B were to get assistance from a lender, there are still major business model obstacles that will impact profit potential for years to come. Any additional loans will only add to the already heavy load of debt the company carries. Finally, the company’s short-sighted outlook and poor decision-making must be considered when looking for indications of potential future growth. Despite still being way under its 52-week high, PLAY stock currently seems to offer very little growth potential for the amount of risk involved. 

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