Dave & Buster's Stock Has a Lot to Prove on Tuesday

By Rick Munarriz Markets Fool.com

One of the rare safe bets in the restaurant industry -- Dave & Buster's Entertainment (NASDAQ: PLAY) -- will be in the spotlight in a couple of days. The 88-unit "eatertainment" restaurant chain reports fresh financials after Tuesday's market close, and there's a lot riding on the fiscal fourth-quarter results.

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Wall Street's holding out for another period of growth. Analysts see revenue climbing 14.9% to $269.2 million, in line with recent top-line spurts. Dave & Buster's year-over-year revenue growth has clocked in between 12.4% and 20.8% in each of its first nine quarters since returning as a public company, following its initial public offering in late 2014.

Steady double-digit-percentage revenue growth has been possible as a result of its heady expansion. Dave & Buster's had 11 more locations than it had a year earlier when it posted fiscal third-quarter results in December. It's aiming to open another 11 to 12 new units this year. However, comps have also been positive, as the unique venue that combines casual dining, sports bars, and vibrant gaming arcades stands out in the restaurant space. Dave & Buster's has beaten the competitive casual-dining benchmark in each of the past 18 quarters.

Image source: Dave & Buster's.

Earnings season is hunting season for D&B

The real growth story -- and the reason why Dave & Buster's stock has nearly quadrupled since going public at $16 less than three years ago -- has been its bottom line. Analysts aren't holding out for much this time around; they see a profit of $0.58 a share, up from $0.53 a share a year earlier. However, the entertainment-intensive eatery has consistently landed well ahead of market expectations on that front. It hasn't even been close:

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Quarter EPS EPS
Estimate
Surprise
Q3 2014 ($0.06) ($0.09) N/A
Q4 2014 $0.33 $0.28 18%
Q1 2015 $0.46 $0.37 24%
Q2 2015 $0.40 $0.23 74%
Q3 2015 $0.12 $0.03 300%
Q4 2015 $0.53 $0.43 23%
Q1 2016 $0.72 $0.59 22%
Q2 2016 $0.50 $0.44 14%
Q3 2016 $0.25 $0.14 79%

EPS = earnings per share. Data source: Yahoo! Finance.

Dave & Buster's has managed to beat Wall Street profit targets by at least 14% since its return as a stand-alone public company. Analysts aren't getting any smarter over time: The restaurant operator earned 79% more than Wall Street pros were forecasting last time out.

Maxim Group analyst Stephen Anderson initiated coverage of Dave & Buster's earlier this week with a buy rating and a $72 price target. He knows the score. The stock may have hit new all-time highs earlier this month, but it has typically moved higher after delivering yet another quarter of blowout results.

Dave & Buster's is still vulnerable; the fresh highs may already be discounting a strong report on Tuesday. And it remains to be seen whether the chain can keep its comps positive in an environment where people aren't visiting the more prolific restaurant chains the same way they used to. The stock has emerged as a market darling in a challenging niche, but every quarter means a new test that it has to pass.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Dave and Buster's Entertainment. The Motley Fool has a disclosure policy.