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Dave & Buster's Stock Has a Lot to Prove This Week

Rick Munarriz, The Motley Fool

The game's afoot at Dave & Buster's Entertainment (NASDAQ: PLAY). The growing chain of big-box centers that combine casual dining with video arcade gaming reports its fiscal first-quarter financials this week. 

The stock initially rallied after a better-than-expected showing last time out, with adjusted revenue and earnings per share rising 16% and 14%, respectively. The shares initially rallied on the strong report, and Wall Street gave it a standing ovation. However, Dave & Buster's stock has gone on to surrender all of those gains, and it's back to trading below where it was just before early April's monster report.

One can argue that the stock's recent slide discounts a rough quarter this week, but the other side of that coin is that the shares can bounce back into favor with another strong earnings release. We'll know the answer soon, as Dave & Buster's reports shortly after Tuesday's market close. 

Interior shot of Dave & Buster's Million Dollar Midway.

Image source: Dave & Buster's.

Token of appreciation

Analysts are holding out for solid yet decelerating growth on both ends of the income statement in the upcoming report. They see revenue rising nearly 12% to top $370 million with a profit of $1.12 a share. Dave & Buster's checked in with earnings of $1.04 a share during last fiscal year's first quarter.

The only real surprise in the report is if Dave & Buster's doesn't earn quite a bit more than $1.12 a share. The "eatertainment" chain has done nothing but trounce Wall Street earnings expectations. 

Quarter EPS Estimate EPS Actual Surprise
Q1 2018 $0.93 $1.04 12%
Q2 2018 $0.67 $0.84 25%
Q3 2018 $0.24 $0.30 25%
Q4 2018 $0.63 $0.75 19%

Data source: Yahoo! Finance.

Dave & Buster's has come through with double-digit percentage beats every quarter over the past year. It routinely offers conservative guidance, and momentum continues to be in its corner. However, a beat isn't enough. Dave & Buster's wouldn't be trading closer to its 52-week low than its all-time high two years ago if topping bottom-line targets was enough. In fact, comps were negative in three of these four blowout reports. 

Analysts tend to rally following the better-than-expected results, and in April, that meant BMO Capital and Maxim pushing their price targets higher. Andrew Strelzik at BMO Capital was impressed with the all-around beat, dismissing the chain's ho-hum guidance for all of fiscal 2019 as conservative. The goal as he saw it at the time was for Dave & Buster's to keep the positive comps going into the second quarter of this year when it laps last year's initial virtual reality launch.

Stephen Anderson at Maxim was encouraged to see continuing strength in Dave & Buster's amusements business and a return to positive comps on the food and beverage end of its business for the first time in two years. He boosted his full-year earnings outlook following the chain's ambitious stock buyback plan. 

Strelzik's and Anderson's price targets were raised to $66 and $67, respectively. The stock is well below those marks now, so it won't be a shock if they lower their price goals and maintain their bullish ratings even if we see a strong report. This is a game that never ends, and Dave & Buster's stock will be on the move this week.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.