Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) shareholders may be concerned after seeing the share price fall 15% last quarter. But that doesn’t change the fact that returns over the past three years have been very strong. The share price marched upwards during that time, and is now 200% higher than before. After a run like that some might not be surprised to see the prices moderate. The thing to consider is whether the underlying business is good enough to support the current price.
With the stock down 4.9% last week, we wanted to investigate the longer-term story, and see if the fundamentals are driving the company’s positive three-year return.
Check out our latest analysis for Dave & Buster’s Entertainment
SWOT Analysis for Dave & Buster’s Entertainment
- Revenue growth last year outpaced the industry.
- Debt is well covered by earnings and cashflows.
- No major weaknesses have been identified for PLAY.
- Annual revenue is projected to grow faster than the American market.
- Good value based on P/E ratio compared to estimated Fair P/E ratio.
- Revenue is estimated to grow slower than 20% annually.
To quote Buffett, ‘Ships sail around the world but the Flat Earth Society thrives. There will continue to be large differences between the price and the market value …’ A flawed but reasonable way to determine how the sentiment of a company is changing is to compare the earnings per share (EPS ) of the share price.
Over the past three years, Dave & Buster’s Entertainment has failed to grow earnings per share, falling 1.9% (annualized).
Based on these numbers, we think that the decline in earnings per share may not be a good representation of how the business has changed over the years. So other metrics may hold the key to understanding what influences investors.
It may be that Dave & Buster’s revenue growth rate of 27% in three years has convinced shareholders to believe in a brighter future. If the company is managed for the long term benefit, the current shareholders will be right to continue.
You can see how revenues and earnings have changed over time in the image below (click on the chart to see the exact values).
We want insiders to have bought shares in the last twelve months. As such, most people consider revenue and revenue growth trends to be a more meaningful business guide. If you’re thinking about buying or selling Dave & Buster’s Entertainment stock, you should check it out free report showing analyst profit forecasts.
A Different Perspective
We are sorry to report that Dave & Buster’s Entertainment shareholders are down 29% for the year. Unfortunately, that was worse than the broader market’s decline of 7.7%. That being said, it is inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year’s performance may reflect unresolved challenges, as it is worse than the annual loss of 3% over the past half decade. We realize that Baron Rothschild said that investors should “buy when there is blood in the streets”, but we caution that investors should first be sure that they are buying a high quality business. It is always interesting to track share price performance over the longer term. But to better understand Dave & Buster’s Fun, we need to consider several other factors. For example, we know 1 warning sign for Dave & Buster’s Entertainment that you should know.
Dave & Buster’s Entertainment isn’t the only stock insider buys. So check it out free list of growing companies with insider buying.
Please note, the market returns cited in this article reflect the market weighted average return of stocks currently trading on American exchanges.
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Find out if Dave & Buster’s Entertainment may be overvalued or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and caveats, dividends, insider transactions and financial health.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased approach and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.