Bearing the brunt of the damage inflicted by the COVID-19 pandemic, restaurant and amusement center Dave & Buster’s Entertainment (NASDAQ:PLAY) suffered badly from the crackdown on non-essential activities. However, with the crisis fading and pre-pandemic social norms gradually returning, leading to increased foot traffic at Dave & Buster’s locations, the company could be poised for more upside. Therefore, I am bullish on PLAY stock.
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PLAY Stock Enjoys Strong Fundamental Momentum
Before jumping into the meat of the discussion, it’s important to point out that PLAY stock benefits from multiple fundamental positives. While the underlying company’s first quarter of Fiscal 2023 (ended April 30) delivered mixed results, the report gave the bulls plenty to chew on.
As TipRanks reporter Radhika Saraogi stated, Dave & Buster’s rang up sales of $597.3 million, representing a year-over-year increase of 32.4%. To be fair, the otherwise impressive tally missed analysts’ consensus target of $603.9 million. Still, the surge demonstrates that the company is in the middle of a comeback following the pandemic lows.
Specifically, the expansion of the top line “can be attributed to a 31.4% jump in Entertainment revenues and a 34.4% rise in Food and beverage revenues,” wrote Saraogi.
On the bottom line, Dave & Buster’s delivered earnings per share of $1.45. Here, the company surpassed analysts’ expectations calling for $1.26 per share. In addition, the latest result improved upon the year-ago quarter’s EPS of $1.35.
Subsequently, PLAY stock responded positively to the news as the underlying enterprise also disclosed expanding its global footprint. During Q1, Dave & Buster’s launched a new store in Puerto Rico. Also, management inked two international franchise agreements, which should pave the way for expansion in India and Australia.
Return to Office to Potentially Lift Dave & Buster’s
Interestingly, multiple sources indicate that India and Australia may see efforts to bring their workers back to the office. For India, multiple technology firms have asked their employees to return to the traditional workplace. Regarding Australia, at least one source indicates that a majority of Australians are keen on returning to the office. Fundamentally, the Great Return bodes very well for PLAY stock.
Primarily, multiple companies – including heavyweights like Disney (NYSE:DIS) – have announced return-to-office mandates. As society moves further away from the COVID-19 crisis, it’s reasonable to expect that additional enterprises will continue recalling workers.
To be sure, it’s a controversial move. Overwhelmingly, most workers prefer to operate remotely in the same way that most criminals appreciate lax enforcement of retail property theft laws. Again, it’s a rude analogy, but underlying the return-to-office directive is a lack of trust.
Years before the COVID-19 pandemic, employees wasting time on the clock (meaning excluding lunches and scheduled breaks) represented a major problem. At least one publication characterized the issue as an “epidemic.” Now, these same publications suggest that workers are more productive without accountability.
By that logic, the best way to address rising criminality is to hire fewer police officers and enforce fewer laws. One only needs to look at Target (NYSE:TGT), which is struggling with theft, to see the fallacy in this thinking. Therefore, a broader return to the office is coming, sooner or later, and that should benefit PLAY stock on the return of the office-adjacent economy.
Kicking in the Afterburners
Earlier this year, Dave & Buster’s announced a launch into the Metaverse, opening its virtual doors to a digital ecosystem. It’s part of management’s efforts to diversify the business to compensate for the COVID-19 impact. While the efforts appear very successful, the beauty of PLAY stock is that the core business (the real doors, not the virtual kind) is likely set to return. Therefore, the afterburners haven’t quite kicked in yet.
Since late 2021, Dave & Buster’s top line has been consistently and consecutively expanding. Again, this increase has been occurring during a period when white-collar workers mostly operated remotely. However, in 2023, momentum for the return to the office picked up steam.
In other words, the revenue lift occurred during a time when the company’s addressable market was limited. Once a wider return to the office materializes (causing more stress for employees, thereby increasing their odds of wanting to destress and have fun), Dave & Buster’s probably becomes incredibly relevant. Therefore, PLAY stock deserves to be on investors’ radar.
Wall Street’s Take on Dave & Buster’s Entertainment
Turning to Wall Street, PLAY stock has a Strong Buy consensus rating based on six Buys, two Holds, and zero Sell ratings. The average PLAY price target is $53.29, implying 40.33% upside potential.
Also, on TipRanks, PLAY stock has a ‘Perfect 10’ Smart Score rating. This indicates strong potential for the stock to outperform the broader market.
The Takeaway: PLAY Stock Awaits Its Catalyst
Fundamentally, what appeals about PLAY stock is that the company generated positive momentum despite its core business model – helping worker bees blow off some steam after a tough day at the office – coming under direct fire. Now that the core business stands poised to return, Dave & Buster’s seems attractive.
