Dave and Busters: Entertainment Play

07/06/2016 7:00 am EST


Tom Bishop

Founder, BI Research

Our latest featured recommendation is a casual restaurant concept where you go to have a good time, and not only eat and drink, but also play games and watch sports, observes small cap expert Tom Bishop, editor of BI Research.

If you had to guess what restaurant has the highest average revenue per restaurant you probably wouldn’t have guessed Dave and Busters (PLAY).

But indeed this concept leads the industry with $11.8 million average per unit. The company has a great formula, proven in over 80 locations. These revenues break down to 47% for food and drink and a whopping 53% from games.

There is still much potential in the US where the company believes it can have at least 207 units, up from the current 82.

Another leg to the growth plan is to also open international locations. There is tremendous untapped potential outside of North America.

And if you like EPS surprises, here you go. In the last 4 quarters, the company beat analysts’ estimates by 24%, 74%, 300% and 23% in the most recent quarter.

The concept primarily targets adults in the 21 to 39 age range, and skews moderately more male at 60%. Locations are actually popular for corporate and social special events, which account for 11% of revenues.

It has been working very well for them from industry leading average revenues to earnings per share growth at the bottom line. In fact, gross margins are also industry leading at 81.2%.

The past two years have been the strongest growth years ever for the company. Odds are surprises will be smaller over time, but the company clearly has a conservative nature, which is good. Investors just love surprises.

D&B has cash of $25 million, $331 million in long-term debt and generated $186 million of cash from operations last year.

Clearly management has a winning formula here and has proven they can execute. We rate PLAY a buy for long term growth.

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By Tom Bishop, Editor of BI Research

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