Are you ready to play? Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) is among the few companies still left to report earnings this quarter — September 14 before market open. And judging from the Dave & Buster’s stock reaction to last quarter’s earnings, the potential for profit here is huge.
There are a couple of broad economic factors working in Dave & Buster stock’s favor right now. Consumer spending is rising . In July, U.S. retail sales rose a larger-than-expected 0.5%.
What’s more, restaurants reported a 1.3% rise in sales to $61.6 billion on the month. As a result, the restaurant industry’s annualized three-month gain rose to 25.3% — the fastest pace since 1992!
This enthusiasm has actually become a problem for D&B’s, however. Expectations have risen considerably in the past several months. Currently, analysts expect D&B’s to post a second-quarter profit of 67 cents per share tomorrow morning. Revenue is expected to rise 12.3% to $315.25 million.
But, real expectations may be set considerably higher. According to , the whisper number of D&B’s earnings comes in at 71 cents per share — 4 cents higher than the consensus.
And that’s not all. Thomson/First Call reports that all 10 analysts following Dave & Buster’s stock rate the shares a “buy” or better, with no “sells” or even “holds” to be found. Additionally, the 12-month price-target of $64.56 represents a 14.1% premium to current prices.
Click to Enlarge Even options traders are getting in on the bullish bandwagon. Currently, the September put/call open interest ratio for Dave & Buster’s stock rests at 0.75. This may seem like a high rating compared to most stocks, but it is among the lowest taken this year for PLAY.
There are also technical risks for Dave & Buster’s stock. The shares are currently retreating from overhead resistance in the $59-$60 region, putting the stock at risk of a double-top reversal. This top also coincides with a rollover from overbought levels, with PLAY’s 14-day relative-strength index set to roll lower.
All of this adds up to downside risk for PLAY stock unless D&B’s offers up another blowout quarter tomorrow morning. Furthermore, there is a real risk that the company could issue cautious guidance — especially with Hurricane Florence bearing down on the East Coast. Analysts predict that
by the fallout of this massive storm.
Finally, September implied is pricing in a rather sizable post-earnings move for PLAY stock of more than 9%. This puts the upper bound for a post earnings move near $62, and the lower bound near $51.50.
2 Trades for Dave & Buster’s Stock
Put Spread: With the bar set exceedingly high for PLAY, Dave & Buster’s stock looks quite vulnerable right now. Traders looking to bet against PLAY stock might want to consider an October $50/$55 bear put spread. At last check, this spread was offered at $1.50, or $150 per pair of contracts. Breakeven lies at $53.45, while a maximum profit of $3.50, or $350 per pair of contracts is possible if Dave & Buster’s stock closes at or below $50 when October options expire.
Call Spread: There is also the very real possibility that all this hype surrounding D&B’s is for good reason. The company could once again surprise investors with a solid report and strong guidance. What’s more, the recent dip out of overbought territory could aid the shares following earnings.
Traders looking to bet bullish on Dave & Buster’s stock may want to consider an October $60/$65 bull call spread. At last check, this spread was offered at $1.05, or $105 per pair of contracts. Breakeven lies at $61.05, while a maximum profit of $3.95, or $395 per pair of contracts, is possible if PLAY closes at or above $65 when October options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
