There's nothing wrong with nil. While shares of Dave & Buster's (NYSE:DAB) were roughed up yesterday because the company simply broke even, there's a lesson here about seasonality that bears repeating.
If your portfolio is filled with happy, shiny companies that sport sequential gains and never skip a quarterly beat, good for you. Odds are you don't own companies like tax specialist H&R Block (NYSE:HRB), amusement park operator Six Flags (NYSE:PKS), or just about any retailer.
Seasonality matters. It's not always apparent. For instance, well, let's talk about Dave & Buster's. With its indoor entertainment havens providing casually upscale grub, games, and booze, you wouldn't necessarily expect it to have a weak period. Well, think again. Without fail, the chain's October quarter has been its weakest.
The only two quarters in which D&B has posted a loss on this side of the millennium were, of course, third quarters. In the years in which the company closed the period out of the red it was still the fiscal year's weakest showing by far.
So swallow the zilch and accept the company's guidance that it is still on track to earn between $0.89 and $0.93 a share this year. Even the fact that comps were down by 1.6%, which is not worth bragging about, isn't so dreadful because the weakness at the store level took place during the company's most insignificant quarter (and, yes, a few of its stores were in the line of the brutal Florida hurricanes this summer).
As a grown-up version of CEC Entertainment's (NYSE:CEC) Chuck E. Cheese franchise, the spinning D&B sign still stands for fun, food, and games. Just remember the seasonal lesson that the third quarter is a historical snoozer. If the market doesn't see it that way and swings the stock wildly one way or another, consider it a compelling contrarian opportunity to either buy or sell the stock based on Wall Street's misunderstanding of D&B's seasonality.
Longtime Fool contributor Rick Munarriz likes the fact that he has two Dave & Buster's within a 30-mile drive of his house. He does not own shares in any of the companies mentioned in this story and is a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance.
