Dave & Buster's (PLAY)

Underperform
We wouldn’t buy Dave & Buster's. Its weak sales growth and low returns on capital show it struggled to generate demand and profits. StockStory Analyst Team
Anthony Lee, Lead Equity Analyst
Max Juang, Equity Analyst

1. News

2. Summary

Underperform

Why We Think Dave & Buster's Will Underperform

Founded by a former game parlor and bar operator, Dave & Buster’s (NASDAQ:PLAY) operates a chain of arcades providing immersive entertainment experiences.

  • Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 7.1% annually
  • Cash-burning history makes us doubt the long-term viability of its business model
  • Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Dave & Buster’s quality doesn’t meet our expectations. There are superior opportunities elsewhere.
StockStory Analyst Team

Why There Are Better Opportunities Than Dave & Buster's

Dave & Buster’s stock price of $19.45 implies a valuation ratio of 7.1x forward P/E. Dave & Buster’s valuation may seem like a bargain, but we think there are valid reasons why it’s so cheap.

Cheap stocks can look like great bargains at first glance, but you often get what you pay for. These mediocre businesses often have less earnings power, meaning there is more reliance on a re-rating to generate good returns - an unlikely scenario for low-quality companies.

3. Dave & Buster's (PLAY) Research Report: Q4 CY2024 Update

Arcade company Dave & Buster’s (NASDAQ:PLAY) missed Wall Street’s revenue expectations in Q4 CY2024, with sales falling 10.8% year on year to $534.5 million. Its non-GAAP profit of $0.69 per share was in line with analysts’ consensus estimates.

Dave & Buster's (PLAY) Q4 CY2024 Highlights:

  • Revenue: $534.5 million vs analyst estimates of $545.4 million (10.8% year-on-year decline, 2% miss)
  • Adjusted EPS: $0.69 vs analyst estimates of $0.69 (in line)
  • Adjusted EBITDA: $127.2 million vs analyst estimates of $128.3 million (23.8% margin, 0.9% miss)
  • Operating Margin: 8.3%, down from 15% in the same quarter last year
  • Free Cash Flow was $108.9 million, up from -$25.4 million in the same quarter last year
  • Same-Store Sales fell 9.4% year on year (-4.4% in the same quarter last year)
  • Market Capitalization: $648.2 million

Company Overview

Founded by a former game parlor and bar operator, Dave & Buster’s (NASDAQ:PLAY) operates a chain of arcades providing immersive entertainment experiences.

The Dave & Buster's experience is centered around “playing to win”, where customers purchase credits to play games and earn tickets that can redeemed for various prizes. The company’s venues typically feature a gaming floor, a sports bar with large-screen TVs airing live sporting events, and a dining section featuring a diverse menu of American favorites and cocktails.

Through these three areas, Dave & Buster's caters to multiple customer segments including families looking for a fun day out, young adults seeking social activities (some evenings feature 21+ only events), and companies organizing team-building events or corporate parties.

Dave & Buster's employs various marketing initiatives such as digital advertising and promotional events to reach customers and incentivize customer spending across the company’s food, beverage, and entertainment offerings. The company also offers loyalty programs and special packages to attract repeat business and enhance customer engagement.

4. Leisure Facilities

Leisure facilities companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted their spending from "things" to "experiences". Leisure facilities seek to benefit but must innovate to do so because of the industry's high competition and capital intensity.

Dave & Buster’s competitors include Bowlero (NYSE:BOWL), TopGolf Callaway (NYSE:MODG), Six Flags (NYSE:SIX), and private company Barcade.

5. Sales Growth

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Dave & Buster’s 9.5% annualized revenue growth over the last five years was tepid. This was below our standard for the consumer discretionary sector and is a rough starting point for our analysis.

Dave & Buster's Quarterly Revenue

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Dave & Buster’s recent performance shows its demand has slowed as its annualized revenue growth of 4.2% over the last two years was below its five-year trend. Note that COVID hurt Dave & Buster’s business in 2020 and part of 2021, and it bounced back in a big way thereafter. Dave & Buster's Year-On-Year Revenue Growth

Dave & Buster's also reports same-store sales, which show how much revenue its established locations generate. Over the last two years, Dave & Buster’s same-store sales averaged 4% year-on-year declines. Because this number is lower than its revenue growth, we can see the opening of new locations is boosting the company’s top-line performance. Dave & Buster's Same-Store Sales Growth

This quarter, Dave & Buster's missed Wall Street’s estimates and reported a rather uninspiring 10.8% year-on-year revenue decline, generating $534.5 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 4.7% over the next 12 months, similar to its two-year rate. This projection is underwhelming and indicates its newer products and services will not catalyze better top-line performance yet.

6. Operating Margin

Dave & Buster’s operating margin has been trending down over the last 12 months, but it still averaged 12.2% over the last two years, decent for a consumer discretionary business. This shows it generally does a decent job managing its expenses.

Dave & Buster's Trailing 12-Month Operating Margin (GAAP)

In Q4, Dave & Buster's generated an operating profit margin of 8.3%, down 6.7 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

7. Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Dave & Buster's, its EPS declined by 7.2% annually over the last five years while its revenue grew by 9.5%. This tells us the company became less profitable on a per-share basis as it expanded.

Dave & Buster's Trailing 12-Month EPS (Non-GAAP)

In Q4, Dave & Buster's reported EPS at $0.69, down from $1.02 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Dave & Buster’s full-year EPS of $2.48 to grow 9.5%.

8. Cash Is King

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Dave & Buster's broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

Dave & Buster's Trailing 12-Month Free Cash Flow Margin

Dave & Buster’s free cash flow clocked in at $108.9 million in Q4, equivalent to a 20.4% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts’ consensus estimates show they’re expecting Dave & Buster’s free cash flow margin of negative 2.3% for the last 12 months to remain the same. Hopefully the company’s cash profitability will rise soon.

9. Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Dave & Buster's historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.9%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Dave & Buster’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

10. Balance Sheet Risk

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Dave & Buster's burned through $48 million of cash over the last year, and its $3.05 billion of debt exceeds the $6.9 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Dave & Buster's Net Debt Position

Unless the Dave & Buster’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Dave & Buster's until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

11. Key Takeaways from Dave & Buster’s Q4 Results

We struggled to find many positives in these results as its revenue, same-store sales, and EBITDA missed Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $16.29 immediately following the results.

12. Is Now The Time To Buy Dave & Buster's?

Updated: May 4, 2025 at 11:22 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Dave & Buster's.

We cheer for all companies serving everyday consumers, but in the case of Dave & Buster's, we’ll be cheering from the sidelines. To kick things off, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its Forecasted free cash flow margin suggests the company will have more capital to invest or return to shareholders next year, the downside is its same-store sales performance has disappointed. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Dave & Buster’s P/E ratio based on the next 12 months is 7.1x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $24.71 on the company (compared to the current share price of $19.45).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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