Market Cool On Dave & Buster's Entertainment, Inc.'s (NASDAQ:PLAY) Earnings Pushing Shares 29% Lower

To the annoyance of some shareholders, Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) shares are down a considerable 29% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 70% loss during that time.

Since its price has dipped substantially, Dave & Buster's Entertainment may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.6x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 32x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

While the market has experienced earnings growth lately, Dave & Buster's Entertainment's earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. 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.

See our latest analysis for Dave & Buster's Entertainment

Keen to find out how analysts think Dave & Buster's Entertainment's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Dave & Buster's Entertainment would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 25% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 304% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 30% during the coming year according to the ten analysts following the company. That's shaping up to be materially higher than the 14% growth forecast for the broader market.

In light of this, it's peculiar that Dave & Buster's Entertainment's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

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

Shares in Dave & Buster's Entertainment have plummeted and its P/E is now low enough to touch the ground. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Dave & Buster's Entertainment currently trades on a much 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 significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Dave & Buster's Entertainment is showing 4 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

If you're unsure about the strength of Dave & Buster's Entertainment's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.