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About Dave & Buster’s

Dave & Buster’s is a place filled with fun, food and arcade games as far as the eye can see.

That’s what it is meant to be anyways, but I haven’t been to one in a very, very long time so it’s hard for me to imagine what it’s like nowadays, but we’re sure Dave and Buster have maintained the fun element over time since the company’s founding in the early 80s (1982, to be exact).

For those who perhaps aren’t as familiar with Coppell, Texas-headquartered Dave and Buster’s, it is basically the grown-up version of Chuck E. Cheese, as it is a rather large sandbox, free-for-all-type venue filled with classic arcade games, more digital, immersive, virtual reality (VR)-rooted games as well as proper food and drink venues within each Dave and Buster’s location as well.

With this initial information in the eggshell, it is already sort of clear that this company, such that pretty much the entirety of its business and consumer appeal is rooted within being live and in person, is not even close to being immune to COVID-19-related scares and lockdowns, nor do we presume it to be able to perform all that well during times of general economic stress or recessionary eras or perhaps inflation-riddled eras also, as the products and services offered at Dave & Buster’s are just about as discretionary as they get, as individuals and families are more than likely to pay their essential bills and expenses way before even merely considering visiting the Dave & Buster’s that is closest to them.

While we are by no means trying to put a sour taste in your mouth early on, this is something that we have worried about a good deal given the company and industry, as the company relies heavily on generating revenues through the sale of arcade game tokens and credits, the food and beverage it supplies and through hosting specialized events such as birthday parties, graduation celebrations and a bunch of other special occasions, all of which strictly rely upon large groups of people convening at one of its locations, and if the economy wells up, so will Dave and Buster’s’ revenues in corresponding fashion, at least this is what we presume to be the case.

On a more objective note, it is also worth briefly explaining that while Dave & Buster’s is this company’s main and most prized venue in the company’s system, it is also home to another well scaled fun-filled venue operator by the name of Main Event.

What’s the difference between Dave & Buster’s and Main Event, one might ask?

Well, Main Event appears to be much more targeted towards family units whereas while Dave & Buster’s seems to certainly have room at the table for children and their parents, it is geared more towards maybe a larger, more rowdy clientele profile, such as teenagers and/or younger adults.

Given all of this preliminary information regarding Dave & Buster’s and we do apologize for the perhaps discouraging introduction, this company’s stock (NASDAQ: PLAY) may very well be worth taking a hard look into, as it might have some very compelling financial attributes behind all of the facilities and fun.

D&B’s stock financials

In getting our own fun fest started, it can be found that Dave & Buster’s share price trades at $54.22 with an associated market capitalization of $2.18 billion along with a price-to-earnings (P/E) ratio of 19.84, which is quite intriguing in and of itself given the commonly held fair value benchmark of 20 and anything lower than said benchmark indicates that a stock is trading at a discount and anything higher than 20 implies that the security is trading at a premium (i.e., is overvalued), as in this particular case, Dave & Buster’s stock (NASDAQ: PLAY), for all intents and purposes can be considered to be trading at exactly fair value, or what it is worth paying for today.

Now, the question really is whether or not there are some excellent financials behind this company, or some tailwinds whispering through the numbers that could tip the scales and perhaps, just maybe make this company’s stock a “buy.”

We shall see.

Prior to diving much further, it can also be found that the company does not currently offer its shareholder base a consistent annual dividend, which was frankly to be expected due to the cost-intensive nature of the business landscape of which both Dave and Buster operate, as there are a good deal of labor costs involved, not to mention some of the weightier long-term costs such as the very real estate Dave & Buster’s either owns or leases.

This company ought to keep as much cash on hand as possible, especially for a rainy day such as the onset of COVID-19 or in the event of a simple recessionary period.

At any rate, according to the company’s balance sheet, Dave & Buster’s executives are in charge of approximately $3.8 billion in terms of total assets as well as just about $3.3 billion in terms of total liabilities, which, to us, at least, is neither a sign of impending doom nor a strong, confidence inducing point, but really, again, given the nature of the company’s real estate portfolio and the good deal of other expenses it has to tend to, it all generally makes sense that Dave & Buster’s has a considerable amount of total liabilities with respect to its total assets.

Nevertheless, we are happy that the company’s executives have managed to maintain an overall total asset-heavy posture, as all things constant, we don’t see this company filing bankruptcy or finding itself in any major financial hot water given the general condition of its balance sheet.

Regarding the company’s income statement, Dave & Buster’s annual revenues (measured starting in 2019) have remained consistent for the most part, staying somewhere between $1.3 billion and $1.9 billion between 2019 and 2023, except, of course, during 2020, as shown through the revenue figure displayed in 2021, absolutely plummeting to $437 million, undoubtedly due to COVID-19 and national shutdowns that stemmed from the onset of the Pandemic, and while this certainly quantifies this company’s vulnerability and sensitivity to public health emergencies (as mentioned in the beginning of this stock analysis article), we sympathize with the fact that this company can only control so much in this context and while we won’t give any company a pass, per se, we will say that this was largely out of this company’s control and thus we take it with somewhat of a grain of salt, but it is nevertheless still an important factor and threat behind closed doors facing this company and others alike.

What is assuring, however, is the revenue rebound that followed, ballooning back to $1 billion territory, climbing likely due to heightened organic demand (i.e., families and friends wanting to get back to doing in-person social activities together) and in more recent history, perhaps incremental price hikes imposed on the consumer by Dave & Buster’s, which has been all too common over the last couple of years with companies across the board, so as to offset external costs, for instance, heightened supply chain-related expenses.

With respect to the company’s cash flow statement, Dave & Buster’s net income and total cash from operations figures can be likened to its previously displayed and mentioned revenue figures in the sense that the figures have been consistent and positive during the same timeframe, however, 2021 was pretty much a complete wash, as the company reported both negative net income and total cash from operations, however, at an absorbable and sustainable rate for that one year, subsequently rebounding to normal, comforting levels in the years that immediately followed.

D&B’s stock fundamentals

This is frankly a line of business (and a company for that matter) that we aren’t expecting a whole lot from on the margin side of things, especially given all of the associated fixed and variable costs involved with operating a single Dave & Buster’s facility, however, here’s hoping.

According to the figures displayed on TD Ameritrade’s platform, Dave & Buster’s trailing twelve month (TTM) net profit margin is 5.99% to the industry’s respective listed average of 12.74%, which is disappointing to a degree, as Dave & Buster’s is certainly a leader in the family and friends casual entertainment venue space, however, upon further thought, it does make a bit of sense that Dave & Buster’s trails the industry’s average, as being a leader, it naturally maintains and operates more locations around the United States and thus incurs more expenses, cutting deeper into its margins, eventually bleeding into the bottomest of bottom lines, its TTM net profit margin.

This being the case, we deem annual progress to be the key in the quarters and years that follow, as we surely hope that the company continues inching closer and closer to the industry’s respective average TTM net profit margin, however, this will certainly not happen overnight.

Lastly, with respect to the company’s core TTM returns on both assets and investment(s), once again, Dave & Buster’s figures are lagging on these fronts, with, for example, the company’s TTM return on investment listed as 3.96% to the industry’s respective average of a much more impressive 17.30%, which surely is a sizable difference, leading us to wonder if there’s more to the depressed returns than just “big company syndrome,” as we would’ve certainly hoped that the company’s TTM return on investment would’ve been considerably closer to the average of its peers.

Perhaps this company needs to work on its overall operational efficiency and the further planning and execution of new facilities and other projects as well, and with that, its general capital allocation.

Should you buy D&B stock?

While it is somewhat rare to find one’s self in the price-to-earnings fair value benchmark territory, this is a tough call, as the company’s balance sheet is in good shape (all things considered), its revenues have been steady (excluding extraordinary events such as the public onset of COVID-19), its cash flows have been good, not great, and its comparable margins and core return metrics (both on a TTM basis) aren’t that impressive or competitive at all for the time being, which can be reasonably justified to a certain degree, however, until we see some progress on these fronts, we aren’t as bullish as we’d like to be on this company and its stock (NASDAQ: PLAY).

Additionally, we hold somewhat of a vague negative view to the company’s stock due to it also being in a very, very discretionary category of business, meaning that as consumer budgets tighten, the last thing on their minds is likely going to shell out a nice chunk of change to play some arcade games and eat some expensive arcade food.

Thus, we feel it is most appropriate to offer this company’s stock a “hold” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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