Davie & Buster's: Food, Games and Sports
10/12/2016 8:00 am EST
Companies are sometimes like cats; they can have multiple lives. This new recommendation returned to the public markets in October 2014 after a ten-year run from 1997-2006 which ended in bankruptcy, declares Doug Gerlach, Investor Advisory Service.
Dave & Buster’s Entertainment (PLAY) emphasizes the tagline “Eat, Drink, Play and Watch” by setting up the restaurant’s layout to play games, watch sports, dine, and drink at its full-service bar areas.
Dave & Buster’s has been refurbishing all of its restaurants by adding over 40 100+ inch high-definition TV to its locations, providing an additional draw around popular sporting events.
The company reports that about 70% of its 81 restaurants as of January 2016 have received the viewing upgrade, with more to follow.
Dave & Buster’s expects to grow through the addition of new US restaurants, comparable store sales gains, and international franchising; the company believes there is potential for 200 restaurants in the US, more than double its current base.
The company is also interested in partnering with retailers and restaurant groups to franchise outside of North America.
In October 2015, the company signed an exclusive agreement with Dubai-based Apparel Group to open seven restaurants over a 7-year period within a six-country region of UAE, Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia.
An investment in Dave & Buster’s carries risk. Restaurants are cyclical, and with such a heavy reliance on entertainment Dave & Buster’s is further exposed.
However, for the first time in its history the firm’s internally-generated cash flow is more than sufficient to support the capital needed to fund its new restaurant openings and service its debt.
We project Dave & Buster’s can achieve annual earnings growth of 13%. Five years of this earnings growth and an average high P/E of 30 could generate a stock price as high as $103.
For a low-price estimate, we use a P/E of 20 and multiply by fiscal 2015 EPS of $1.39 to generate a low price of $27 per share.
By Doug Gerlach, Editor of the Investor Advisory Service