PLAY Plummets After Sounding Bankruptcy Alarm

The equity is down over 60.4% year-over-year

Digital Content Manager
Sep 17, 2020 at 11:16 AM
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The shares of Dave & Buster's Entertainment Inc (NASDAQ: PLAY) are down 16.7% at $15.92 this morning, one of the top percentage losers on the Nasdaq Composite, after the arcade and restaurant chain warned it might need to file for bankruptcy if it does not reach a deal with lenders. The company reported a significant revenue drop due to coronavirus-related closures, and is currently planning to lay off more than 1,300 workers in seven U.S. states, according to notices filed with employment authorities.

On the charts, PLAY has been struggling for the past several months. Though shares attempted to rally in early June, those efforts were quickly capped by the 100-day moving average. While this trendline eventually emerged as a floor for PLAY, the stock had been wrestling with overhead pressure at the $20 mark, which is still less than half this year's high of $48.80 on Jan. 17. Year-over-year, the security is weighed down by a 60.4% deficit. 

Analysts are approaching PLAY with caution. Six of the nine in coverage sport a tepid "hold" rating, and the remaining three carry a "strong buy." On the other hand, the 12-month consensus target price of $19.60 is a whopping 27.2% premium to current levels, meaning price target cuts could very well be on the security's horizon.

Digging deeper, short interest dropped 19.1% in the last two reporting periods. Still, the 13.70 million shares sold short account for 37.7% of the stock’s total available float. At the equity's average pace of daily trading, it would take almost two days for shorts to cover their bearish bets.

The options pits lean more optimistic, with calls getting the upper hand. PLAY sports a 50-day call/put volume ratio of 3.21 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits in the 94th percentile of its annual range. This suggests a healthier-than-usual appetite for bullish bets of late. 

After today's news, however, the tables seem to be turning. So far, 12,000 puts have crossed the tape, which is 10 times the average intraday amount, and almost twice the number of calls traded. Most popular is the monthly November 10 put, followed by the October 15-strike put, with new positions being opened at both.

What's more, Dave & Buster's stock's Schaeffer's Volatility Scorecard (SVS) sits relatively high at 71 out of 100. In simpler terms, the security has tended to exceed option traders' volatility expectations during the past year -- a boon for options buyers.


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