Why Dave & Buster's Entertainment, Inc. Stock Surged 35% Last Year

Image source: Dave & Buster's.

What happened

Investors inDave & Buster's Entertainment, Inc.(NASDAQ: PLAY) were big winners last year as the restaurant and arcade chain jumped 35% last year according to data from S&P Global Market Intelligence. As the chart below shows, much of the gains came on a pair of strong earnings reports, especially in December, as the company's results continue to blow past analyst estimates.

PLAY data by YCharts.

So what

Dave & Buster's has been a big winner since its 2014 IPO, more than tripling since then, and its recent results made it clear why. At a time when much of the restaurant industry is complaining of slowing traffic and a restaurant recession, Dave & Buster's has continued to put up strong growth numbers thanks in part to its amusement segment.

The stock surged 19% after its third-quarter earnings report as comparable sales increased 5.9% and earnings per share more than doubled from $0.11 to $0.25, crushing estimates at $0.14. The quarter marked the 18th straight period that the company beat comparable sales in the overall casual dining, showing the prowess of its business model. The company raised its guidance as earnings per share are up 71% for the year thus far.

Now what

Dave & Buster's makes more than half of its revenue from amusements, and that segment is significantly more profitable than food and beverage, giving the company several advantages over traditional restaurant operators.

Management has also accelerated the real estate pipeline with plans to open 11 new stores in fiscal 2017 instead of 10, and the closures of department stores and other such retailers could be an ideal opportunity for a company like Dave & Buster's, whose locations average 46,000 square feet. With the company's unique business model and its potential to fill vacant space at malls, I'd expect the stock to continue to climb.

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