In the grand scheme of things, Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) doesn’t exactly rate as one of the market’s best-loved stocks.

The restaurant/entertainment chain relies on consumers that are likely feeling a little more cash-strapped than usual right now.

[ad#Google Adsense 336×280-IA]It’s not like the restaurant business wasn’t already tough enough.

Throw in the fact that PLAY stock isn’t a highly covered name (the few analysts that follow it aren’t exactly stoked about its valuation), and the thesis for investing in Dave & Buster’s just doesn’t hold up.

To those who really know the Dave & Buster’s story, however, it’s tough not to like the company’s prospects.

Dave & Buster’s: A Growth Story Few Have Heard

Dave & Buster’s is categorized as a restaurant company, but the description doesn’t do it justice. It’s a restaurant, and a bar and an arcade — think of it as a Chuck E Cheese for adults, with each requiring up to a 40,000 square foot space to set up shop. Last quarter, more than half of its revenue was driven by its “entertainment” fare.

There’s not a whole lot else out there like it, which is one of the reasons the outfit has found success.

As of the latest count, 81 Dave & Buster’s locales were up and running, but the company believes there’s room for more than 200 such establishments across the nation.

It hasn’t made any bones about its intent to grow to that size in the foreseeable future either. Dave & Buster’s is on pace to open nine to ten new stores this fiscal year, ending January.

The aggressive expansion has some investors nervous. Not only are restaurants notoriously expensive to operate and prone to failure, PLAY stock is already priced at a frothy price-earnings ratio of 28 and trades at about 21 times forward earnings.

At the same time, a scan of the stock market news for the industry reveals that even some of most recognizable names in the business, ranging from McDonald’s Corporation (NYSE:MCD) to Darden Restaurants, Inc. (NYSE:DRI) to Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) are fighting for every scrap of top- and bottom-line growth they’ve managed to achieve of late.


Dave & Buster’s has found a winning formula, though. The proof is in the numbers — past and projected.

And just for the record, the organization has topped its earnings estimates for eight straight quarters.

The Surprisingly Right Environment

Still, doubts linger. The restaurant business is brutal, with far too many of the smaller names in the industry rarely lasting long. What makes PLAY stock a standout?

For starters (and as was mentioned above), Dave & Buster’s Entertainment delivers a lot of the experience consumers want to have, all under one roof. There’s a bigger philosophical movement underway, however, that may be fueling the company’s growth.

Ad Age’s Brian Schultz explained it best and most succinctly a year ago when he noted “consumers want experiences, not things.” Status symbols like BMWs and Tag Heuer watches have been replaced by memorable experiences like travel to exotic locales and time spent having fun with friends and family.

A recent poll indicated the mindset that Schultz was referencing, and bodes well for Dave & Buster’s. A whopping 69% of the millennial crowd acknowledged they experience the fear of missing out on activities their friends are planning. In a separate study, 78% of the Gen-Y crowd said they’d rather spend money on an experience than a physical item.

The two groups make up a huge portion of the company’s target demographic. And, facing facts, the two groups are the ones most married to their mobile devices, and the proliferation of Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR) has made it easy for a young person to realize just how much “life” they’re missing out on compared to their friends.

Bottom Line for PLAY Stock

It’s a unique growth play to be sure, forcing traders to look pretty far down the size scale of the investing world where stock market news about a particular company isn’t terribly common. But, it’s certainly worth a look. As BMO Capital analyst Andrew Streizik put it:

“PLAY remains one of our favorite ideas in restaurants. First, its unique business model continues to insulate performance from issues plauging the broader casual dining industry. PLAY’s strong amusement two-year same-store sales trend (+19%) creates a buffer against the lackluster restaurant industry comp trends.”

Dave & Buster’s will post its second quarter earnings after [today’s] close.

— James Brumley

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Source: Investor Place

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.