Of all the unlikely winners we might have seen in recent days, Dave & Buster's (NASDAQ:PLAY) has to be among the top of the list. Suffering from the loss of its biggest draw—the arcade that's part of every restaurant—this was the kind of recovery narrative stock that really shouldn't have recovered until the recovery actually hit. But the company's recent 12% jump didn't come without reason, and a closer examination of the field shows off why the big run-up hit for the combination restaurant and arcade.
The General Conditions Improve
Normally a big stock bump comes with a bit of extra impetus attached; there's a new development, someone else made a huge investment, or some kind of reason that connects the gains to the company. In this case, such news is thin on the ground, at least specifically. When you pull back and look at the overall market, though, reasons for improvement become clear.
Dave & Buster's has suffered throughout the pandemic, mainly because its business model is largely incompatible with state decrees closing down in-person dining. While Dave & Buster's food isn't necessarily bad, it's not the food that draws most people to Dave & Buster's. Dave & Buster's big draw is that it's one of a handful of video arcade chains left on the entire planet, which as anyone who's lived through the 2000s knows, is getting to be a much harder proposition to find.
Thus, about the only truly winning news for Dave & Buster's is that people are coming back to restaurants. Thankfully, that's just what we have on hand here; Dave & Buster's business model is largely viable now thanks to even the most restrictive states starting to pull the training wheels off and get people back to work.
Improving Environments Draw Analyst Attention
This in turn brings us to the other point that's likely driving gains at Dave & Buster's; new attention from analysts. Our latest research shows that sentiment is holding fairly strong, though has declined somewhat from its brighter days back in November.
November marked a low point for Dave & Buster's, as the company slipped from a consensus “buy” to a consensus “hold”. Six months ago, back in September, the company had one “strong buy” rating, along with five “buy”, four “hold” and one “sell.” Today, it's almost identical, except now we have one “strong buy” rating, four “buy”, five “hold” and one “sell.”
Price target action, though, suggests some potential changes afoot. While things have been fairly slow for Dave & Buster's of late—Deutsche Bank upped its price target from $37 to $41 back in late January—a new move from Raymond James breathed fresh life into the stock. Just four days ago, Raymond James put out a “strong buy” rating and boosted its price target from $45 to $55. Given that Dave & Buster's currently sells at $50.42, Raymond James' target looks more likely to hit now than at any point in the last year.
A Little Extra Love Can Be Just Enough
So while there aren't any big news items for Dave & Buster's, especially of the kind that would fuel double-digit gains, it's probably enough to consider the general environment and a little extra affection from the analyst market. With Raymond James' recently-minted vote of confidence backing things, and a general market environment that's a lot more conducive to its business model—the Buffalo State Record recently announced, with almost-tangible joy, that the Walden Galleria Dave & Buster's would be reopening today—it's not out of line to see the stock price take a leap upward as well.
Next week, the company will be rolling out its earnings reports, and when it does, we'll likely see some further changes. There's no doubt the earnings will come with some bad news—especially where comparisons to 2019 are involved—but investors will undoubtedly be looking less at numbers and more at trends. Is Dave & Buster's showing any signs of improvement? Of a likely return to previous numbers once all the government-required mandates and roadblocks are removed?
The steady climb seen in Dave & Buster's share price over the last five months suggests that investors may already be looking for a return to form, one that could be cemented with the next round of earnings numbers. Will they get that return to form? That depends on several factors going forward over the next several months. Pent-up demand, consumers eager for normalcy, and a little extra stimulus making a night out at one of the last great arcades on the planet sound like a good idea make for a decent catalyst for higher share prices.
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