I'll admit that I don't mind taking my kids to CEC Entertainment's (NYSE:CEC) Chuck E. Cheese. For starters, the pizza is pretty good. But selfishly speaking I love the fact that free-roaming toddlers can't truly value the chain's policy of pricing all of its arcade games at a token.
So while they're busy burning through their coins playing Skee-Ball or some silly ticket-spewing diversions, I can snag the real arcade bargains by playing the latest action or racing games at a price that would empty my pockets at standalone arcades.
Of course there was another way that I could have kept my pockets jingling. After paying about a half-dozen visits to my local Chuck E. Cheese this past quarter, I figured that the crowded weekends would pay off nicely for CEC. Considering the birthday parties, the overworked parents trying to let their kids burn off some excess energy and kids who speed through their token-filled cups, all I had to do was buy into the parent company and make a killing. Did I? Unfortunately not.
Earnings have risen by 24% so far this year as comps have inched 2% higher. Earning $0.58 a share on $183.6 million in revenue during the September quarter, the company continues to build the better mousetrap -- just don't tell the chain's signature mascot.
CEC expects the good times to continue as it is initiating its guidance for fiscal 2005. The company expects to earn between $2.38 and $2.42 a share next year, and that's respectable bottom-line growth in the low teens.
Trading at just 15 times next year's profit projections, CEC is a reasonable value. Despite the massive arcade offerings, the company still generates two-thirds of its revenue from food and drinks, and that makes the company's steady performance even more remarkable.
If you have followed the rocky saga of pizza chains such as Domino's (NYSE:DPZ) and Papa John's (NASDAQ:PZZA), you will see how everything from dieting trends to rising cheese prices have hurt the industry. Serving a captive audience in an environment that affords more in pricing elasticity has been golden for CEC.
So whether or not you appreciate the value of tokens, you may come to appreciate the value of a proven steady producer. Ultimately, that's the game worth winning.
Have you ever been inside a Chuck E. Cheese? Is it a worthy family diversion, or is your time better served in a more educational environment? All this and more -- in the Parents and Expecting Parents discussion board. Only on Fool.com.
Longtime Fool contributor Rick Munarriz really does go to his local Chuck E. Cheese with his two sons. He does not own shares in any of the companies mentioned in this story.
