Dave & Buster's (NASDAQ:PLAY) winning streak has come to an end.

The entertainment emporium had been one of the best stocks in the restaurant sector since its 2014 IPO, rising from its $16 offering price to as high as $73.48 this summer.

However, since that peak the stock has lost nearly a third of its value, falling along with the rest of the casual dining industry before it plunged on its earnings report earlier this week. The last three months mark the worst pullback in the stock's history and the biggest post-earnings decline.

Let's take a closer look at what happened and where investors go from here.

The Dave & Buster's Power Card

Image source: Dave & Buster's.

The bad news

On balance, Dave & Buster's results were decent. Revenue rose 14.9% to $280.8 million, which was short of estimates at $281.7 million. On the bottom line, adjusted earnings per share increased from $0.50 to $0.59, with the help of a lower tax rate, beating expectations at $0.57. Comparable sales rose a modest 1.1%, which was weaker than expected.

There were two main reasons why the stock got thwacked following the report. First, the company lowered its comparable sales guidance for the year from 2-3% to 1-2%, indicating that customer traffic growth would continue slowing down, and, second, the company revealed on the earnings call that food & beverage comparable sales were down 3.4% in the quarter. That was offset by gains in the higher-margin amusement segment, but investors may be concerned that slower food sales mean the company is succumbing to negative trends throughout the casual dining industry.

Negativity around the sector has pushed D&B and its peers down significantly over the past three months. 

PLAY Chart

PLAY data by YCharts

Falling food sales may also be a sign of cannibalization and competition, which management acknowledged was higher than expected. If those effects increase, they could impact the company's ability to meet its goal of opening 211 stores, more than double its current number of 100, or at least make those stores less profitable.

The bright side

Despite the lower comparable sales guidance and falling food comps, there were some numbers that should encourage investors. Management said that newer stores that were not in the comparable base performed well, which convinced the company to maintain its revenue guidance of $1.16-$1.17 billion even though it lowered its comparable sales guidance. In other words, the performance of the newer stores is counteracting the weaker growth in mature stores. 

The company also lifted its guidance for new stores to 14 from 12 previously as its real estate pipeline continues to accelerate as it works toward opening more than 200 stores in North America. Finally, management noted that the company beat the casual dining benchmark in comparable sales for the 21st quarter in a row. That figure shows that though D&B's same-store sales may appear weak, it continues to outperform its peers thanks to its differentiated business model as amusements drive the majority of its revenue and operating profits.

What's next

Shareholders are no doubt disappointed by the stock's recent collapse, but the core components that made Dave & Buster's a winner in the past and make up the investing thesis for the stock are still very much alive today. Its unique business model generates a higher profit margin than competitors and gives the brand a distinct way to attract customers. And while overall restaurant traffic may be hurting as more Americans shop from home, the company should benefit from mall vacancies as it looks to sign new leases.

Finally, Dave & Busters has consistently outpaced Wall Street analysts, beating estimates in every quarter since it went public. That may be the best reason for investors to keep the faith after the latest sell-off. On a P/E basis, the stock is now the cheapest it's ever been at a valuation of just 21. That puts it in league with slower-growing peers like Olive Garden-parent Darden RestaurantsCracker Barrel, and Buffalo Wild Wings.

Analyst expectations for the current quarter also seem low enough for the company to hop over once again as the consensus sees EPS falling a penny from $0.25 a year ago to $0.24.

As D&B continues to expand and deliver profit growth, the stock should recover from the recent losses.

Jeremy Bowman owns shares of Dave & Buster's Entertainment. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.