Please ensure Javascript is enabled for purposes of website accessibility

Why Dave & Buster's Is Tumbling Today

By Rich Duprey – Jun 9, 2020 at 12:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the entertainment-themed restaurant chain have enjoyed enormous gains since March.

What happened

Shares of Dave & Buster's Entertainment (PLAY -1.40%) were falling 9% heading into midday trading after having quadrupled in value over the past three months.

So what

The entertainment-themed restaurant was crushed by the coronavirus pandemic, which forced dine-in restaurants to close. Unlike its restaurant rivals, Dave & Buster's couldn't provide take-out or delivery options, because its business is predicated on in-restaurant entertainment.

Winner's Circle at Dave & Buster's restaurant

Image source: Dave & Buster's Entertainment.

Now what

Dave & Buster's reports first-quarter earnings on Thursday and no one thinks they're going to be anything but bad. Expectations may be so poor, however, that it could surprise to the upside, as it has been reopening its restaurants where allowed.

The chain's stock is still heavily shorted, with 16% of its float sold short, despite the gains its shares have made. A positive earnings surprise could lift shares, possibly fueling a short squeeze where short-sellers race to cover their positions.

Yet Dave & Buster's business wasn't performing up to expectations before the pandemic, and management was trying to effect a turnaround that the COVID-19 pandemic cut short. Now it will need to jump-start those plans again while implementing social distancing guidelines that will necessarily mean reduced customer traffic and sales.

Even with the huge gains Dave & Buster's stock has made, it still trades some 60% below the level it was at before the outbreak. Expect this restaurant stock to exhibit additional volatility in the days and weeks ahead.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dave & Buster's Entertainment, Inc. Stock Quote
Dave & Buster's Entertainment, Inc.
PLAY
$31.03 (-1.40%) $0.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
104%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.