Improved Revenues Required Before Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) Stock's 28% Jump Looks Justified

Those holding Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 51% share price drop in the last twelve months.

Even after such a large jump in price, Dave & Buster's Entertainment may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Hospitality industry in the United States have P/S ratios greater than 1.7x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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View our latest analysis for Dave & Buster's Entertainment

What Does Dave & Buster's Entertainment's Recent Performance Look Like?

Dave & Buster's Entertainment could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Dave & Buster's Entertainment will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

Dave & Buster's Entertainment's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 4.5% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 34% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 4.2% over the next year. That's shaping up to be materially lower than the 20% growth forecast for the broader industry.

In light of this, it's understandable that Dave & Buster's Entertainment's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Despite Dave & Buster's Entertainment's share price climbing recently, its P/S still lags most other companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Dave & Buster's Entertainment maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Dave & Buster's Entertainment (1 is a bit concerning!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Dave & Buster's Entertainment, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.