Stock Analysis

A Piece Of The Puzzle Missing From Dave & Buster's Entertainment, Inc.'s (NASDAQ:PLAY) 33% Share Price Climb

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Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) shares have continued their recent momentum with a 33% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 54% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Dave & Buster's Entertainment's price-to-earnings (or "P/E") ratio of 16x is worth a mention when the median P/E in the United States is similar at about 17x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Dave & Buster's Entertainment certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Dave & Buster's Entertainment

NasdaqGS:PLAY Price to Earnings Ratio vs Industry December 20th 2023
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Dave & Buster's Entertainment.

Is There Some Growth For Dave & Buster's Entertainment?

There's an inherent assumption that a company should be matching the market for P/E ratios like Dave & Buster's Entertainment's to be considered reasonable.

Retrospectively, the last year delivered a decent 13% gain to the company's bottom line. However, due to its less than impressive performance prior to this period, EPS growth is practically non-existent over the last three years overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 33% each year during the coming three years according to the nine analysts following the company. With the market only predicted to deliver 12% per year, the company is positioned for a stronger earnings result.

With this information, we find it interesting that Dave & Buster's Entertainment is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Dave & Buster's Entertainment's P/E

Dave & Buster's Entertainment's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Dave & Buster's Entertainment currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 1 warning sign for Dave & Buster's Entertainment that you need to take into consideration.

Of course, you might also be able to find a better stock than Dave & Buster's Entertainment. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Valuation is complex, but we're helping make it simple.

Find out whether Dave & Buster's Entertainment is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.