Can Dave & Buster's Keep Winning?

Source: Dave & Buster's.

Dave & Buster's is on a roll, just like one of its patrons with a ton of redemption tickets to trade in for an elite prize. Shares of the leading eatertainment chain soared 16% higher last week -- hitting a new high in the process -- after delivering another strong quarterly report.

Revenue climbed 20% to $217.3 million since the prior year's quarter. Expansion helped pad its top-line performance, but the real driver was an 11% surge in comps. You won't find too many eateries or arcades posting double-digit gains at the individual store level, but Dave & Buster's is making it work with its unique model that combines casual dining fare in an upscale setting with a lavish assortment of high-end video games.

It's hard to ignore the diversions when entering a Dave & Buster's. From the classy throwback billiard and shuffleboard tables to the sea of modern video games that include supersized versions of hot apps and ticket-spewing redemption games, it's a unique concept -- at least in the sense of a chain that has grown to 77 different locations. The games are a big part of the model, accounting for more than 54% of the revenue mix in its latest quarter.

That's important because games carry higher margins without the commodity pricing fluctuations. Dave & Buster's naturally isn't as susceptible to wild price swings in food costs as traditional eateries, and that's just another reason to warm up to the stock, which has soared 166% since going public at $16 just 11 months ago.

It's easy to call Dave & Buster's a Chuck E. Cheese for grown-ups, but it's not as if the chain is necessarily shying away from younger patrons. It actually expanded its advertising on Nickelodeon this summer, a brand-widening move that resulted in a healthy uptick in kid meal orders.

Tech is also the chain's friend. All but two of its locations have migrated to electronic tickets stored on swipe cards, a move that at the very least will save Dave & Buster's the $3 million a year it's been spending on print tickets. It also made an interesting move this summer when it rolled out mobile appsof some of its more popular in-store games. If that doesn't sound all that original, keep in mind that players of the online games can trade in their points for tickets that can be redeemed for prizes at its real-world arcades.

Yes, these are good times for Dave & Buster's. It wrapped up last week's blowout financial report by boosting its revenue, comps, and earnings guidance. This has become a common occurrence for a company that has beaten Wall Street's profit targets by double-digit percentage margins in each of its first four quarters as a public company.

The stock may not seem cheap at 33 times this fiscal year's earnings forecast and 28 times next year's mark, but investors can't dismiss the trend that analyst targets seem to creep higher with every passing quarter. Dave & Buster's knows how to play the game.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Dave & Buster's Entertainment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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