Market Might Still Lack Some Conviction On Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) Even After 27% Share Price Boost

The Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) share price has done very well over the last month, posting an excellent gain of 27%. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

Even after such a large jump in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may still consider Dave & Buster's Entertainment as an attractive investment with its 14.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Dave & Buster's Entertainment could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out 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.

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

The only time you'd be truly comfortable seeing a P/E as low as Dave & Buster's Entertainment's is when the company's growth is on track to lag the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 4.6%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 13% over the next year. Meanwhile, the rest of the market is forecast to expand by 15%, which is not materially different.

In light of this, it's peculiar that Dave & Buster's Entertainment's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

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

Despite Dave & Buster's Entertainment's shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of Dave & Buster's Entertainment's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Dave & Buster's Entertainment (at least 1 which is a bit concerning), and understanding them should be part of your investment process.

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.