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Zack’s Bull of the Day: Dave & Buster’s


The restaurant sector has been on fire lately as lower oil prices and a stronger job market have benefited many companies in this space. The outlook is pretty bright too, as the retail-restaurant sector currently has a Zacks Industry Rank in the top 20% overall.

While there are many ways to play this well-positioned sector, one that you might not have considered is the relatively recent IPO of Dave & Buster’s (NASDAQ:PLAY). The company is pretty unique in the sector thanks to its heavy ‘amusement’ component and it could be a strong outperformer for months to come as well.

PLAY in focus

Dave & Buster’s is a Dallas-based chain that has about 70 stores across the United States. The company combines a traditional sit-down restaurant with an arcade, allowing customers to purchase food and drinks, or play a wide variety of games on a given visit.

These games are really what sets Dave & Buster’s apart from the competition though, and especially from a stock perspective. That is because the game component of the business is a pretty high profit margin one and it gives PLAY a nice boost in revenues too. In fact, the amusement/game side of the business accounts for slightly over half of the total revenues for PLAY showing just how important this segment is to their business model.

Analyst Estimates

Analysts seem to be fans of the company’s approach too, as we have seen some solid earnings estimate revisions as of late. In the past 30 days, we have seen the current quarter estimate go from $0.21/share to $0.30/share, while the current year estimate has gone from 60 cents a share to 69 cents a share in the same time frame.

At this level, PLAY will be pushing past 56% EPS growth year-over-year for the current year, and then 33% for the following year. So while growth levels are expected to taper off, the company is still expected to charge ahead in the restaurant space.

But let’s also note that the company has a very disciplined expansion strategy and that there is basically no way they will face oversaturation issues with their current store growth plan. According to the company website, PLAY is opening just four stores a year, and with less than 75 currently in existence, D&B clearly has plenty of avenues left for growth at its disposal.

Bottom Line

For these reasons and the strong industry trend, it shouldn’t be too much of a surprise that we have given PLAY a Zacks Rank #1 (Strong Buy) and are looking for outperformance ahead.

So if you are seeking a growing name in the restaurant space that does things a little differently, take a closer look at PLAY. The company is expected to post great growth numbers despite a very modest increase in store count, and it may be an overlooked winner in the current restaurant stock boom.

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