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Bull of the Day: Dave & Buster's Entertainment (PLAY)

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One of the best stories in the restaurant sector over the past few years has definitely been that of Dave & Buster’s ((PLAY - Free Report) ). The company has seen its stock price surge, and it has largely fought through an environment that has taken down many of its top competitors.

But after the most recent earnings report, shares have struggled, even though the company beat earnings yet again. Comps growth was slowing down, and investors focused in on this issue to sell shares of the company. So, now that we have seen a dip in the shares, many have to be asking; is this the end of the road for the dream run in Dave & Buster’s stock?

Why PLAY Could Have Room to Run

In the company’s most recent earnings report, earnings easily beat the consensus estimate as the company posted EPS of 87 cents compared to 81 cents per share for the expectation. Revenues were also higher by double digit percentage levels when compared to the year ago period.

The firm also increased the bottom end of its earnings guidance range, looks to grow comps in the range of 2%-3%, and is continuing with its expansion plans as they seek to develop another dozen locations. So, guidance for the company wasn’t bad by any stretch, meaning that investors are selling off the partial slowdown in the company’s growth trajectory.

However, PLAY remains an incredible growth story, even if things are slowing down just a tad. This is especially true when you compare some of PLAY’s key growth metrics to the industry at large.

PLAY currently has cash flow growth that is roughly four times the industry average, projected EPS growth that is roughly three times the industry average, and an ROE in excess of 20%. Add in industry-crushing projected sales growth and a sales to asset ratio below 1.0, and you start to question why anyone is worried about this stock from a growth perspective at all. No wonder PLAY has an ‘A’ growth score right now and is one of the best growth stories out there in the market today.

Earnings Estimates

Strength is further confirmed when we look to recent earnings estimate revisions for PLAY stock. While estimates have slumped for the current quarter, the next quarter and then full year period remain pretty bright.

In fact, we have seen six estimates go higher in the past sixty days for the current year compared to zero lower, and the same level for the next year time frame too. But it isn’t just the number of increases, as the magnitude has been impressive as well. We have seen the consensus estimate increase by over 7% in the past sixty days for the full year, and a full four percent for the next year time frame.

And while the current quarter estimate has declined by about 3.6% in the past two months, it is more than made up for by the 7.4% increase in the next quarter period. Overall, the stock has a great earnings estimate picture to go along with an incredible history in earnings season—including a lack of misses since its debut on the market—making PLAY a Zacks Rank #1 (Strong Buy) stock, and one that is a good candidate to persevere through its recent malaise, and power back to new highs.

Bottom Line

After a dream run, it makes sense that some investors are looking to take some off the table in Dave & Buster’s. But the company just posted solid guidance, has great earnings estimate revisions, and a promising growth score too.

So, don’t worry about the growth trajectory in PLAY just yet. The company still has plenty of room to run, and could remain a top choice for investors in the restaurant sector in the near-term too.

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