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Is Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) A Volatile Stock?

Simply Wall St

If you own shares in Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all stocks on the market.

Some stocks mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. Beta is a widely used metric to measure a stock's exposure to market risk (volatility). Before we go on, it's worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that 'volatility is far from synonymous with risk.' Having said that, beta can still be rather useful. The first thing to understand about beta is that the beta of the overall market is one. A stock with a beta greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

See our latest analysis for Dave & Buster's Entertainment

What does PLAY's beta value mean to investors?

Zooming in on Dave & Buster's Entertainment, we see it has a five year beta of 0.83. This is below 1, so historically its share price has been rather independent from the market. This means that -- if history is a guide -- buying the stock would reduce the impact of overall market volatility in many portfolios (depending on the beta of the portfolio, of course). Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see Dave & Buster's Entertainment's revenue and earnings in the image below.

NasdaqGS:PLAY Income Statement, October 23rd 2019

Does PLAY's size influence the expected beta?

Dave & Buster's Entertainment is a small company, but not tiny and little known. It has a market capitalisation of US$1.3b, which means it would be on the radar of intstitutional investors. Small cap stocks ofthen have a higher beta than the overall market. However, small companies can also be strongly impacted by company specific developments, which can move the share price in ways that are unrelated to the broader market. That could explain why this one has a low beta value.

What this means for you:

Since Dave & Buster's Entertainment is not heavily influenced by market moves, its share price is probably far more dependend on company specific developments. It could pay to take a closer look at metrics such as revenue growth, earnings growth, and debt. In order to fully understand whether PLAY is a good investment for you, we also need to consider important company-specific fundamentals such as Dave & Buster's Entertainment’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Future Outlook: What are well-informed industry analysts predicting for PLAY’s future growth? Take a look at our free research report of analyst consensus for PLAY’s outlook.
  2. Past Track Record: Has PLAY been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of PLAY's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how PLAY measures up against other companies on valuation. You could start with this free list of prospective options.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.