Earnings reports can yield unpredictable results, with restaurant and entertainment company Dave & Buster’s Entertainment (NASDAQ:PLAY) providing the latest example. Heading into the disclosure for the first quarter of 2024, PLAY stock benefited from the enthusiasm tied to the post-pandemic recovery narrative. Unfortunately, the company disappointed analysts, leading to a sharp fall in the afterhours session.
According to Zacks Equity Research, market experts projected that Dave & Buster’s would post adjusted earnings per share of $1.56. Instead, it delivered EPS of $1.12. What’s more, the latest print compared poorly to the year-ago quarter’s result of $1.45.
Adding to the misery, Dave & Buster’s generated revenue of $588.1 million. This figure too missed analysts’ expectations by 3.81%. What’s more, the year-ago revenue landed at $597.3 million. Pouring salt on open wounds, Zacks noted that the company has not been able to exceed analysts’ sales targets over the last four quarters.
It doesn’t take a rocket scientist to recognize the dilemma. Nevertheless, contrarian speculators may have an opportunity here.
Focus on the Long-Term Narrative
While the financial disclosure wasn’t pretty, the reality is that the post-Covid-19 cycle has been difficult for many businesses. No one should expect an unblemished record. Further, over the long run, the narrative for PLAY stock appears compelling, particularly as society normalizes from the pandemic. StockStory, in writing for Barchart, stated the following:
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Dave & Buster’s annualized revenue growth of 21.4% over the last two years is above its five-year trend, suggesting its demand has recently accelerated. Note that COVID hurt Dave & Buster’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.
But what really caught investors’ attention regarding PLAY stock is its unusual options activity. Following the close of June 12 session, PLAY options volume hit 28,898 contracts versus an open interest reading of 48,112. The volume spike represented a 906.2% rise from the metric’s trailing-month average reading. Not only that, call volume dominated put volume by a ratio of 2.19 to 1.
What’s more, options flow data – which exclusively filters for big block transactions likely placed by institutional investors – shows that net trade sentiment for the Wednesday session clocked in at $596,900 above parity, thus decisively favoring the bulls.
Trade of the Day: Go Contrarian on PLAY Stock
Clearly, during the afterhours session, the bears had their say, driving PLAY stock down almost 11% to $45 per share. For those with a contrarian spirit, you might want to thank the pessimists. Assuming that PLAY opens today’s session lower, the call options may become artificially cheapened.
For the trade of the day, speculators may want to consider the 20 Sep. 2024 $50 call. Based on Wednesday’s afterhours session, it’s possible that PLAY stock could open below this strike price. However, over time – and potentially ahead of Dave & Buster’s Q2 earnings report – shares may rise above $50.
Again, we must talk about the narrative. According to a recent CBS News report, “93% of business leaders believe employees should be physically present in the office and therefore support [return-to-office] mandates.” With such consensus, Dave & Buster’s total addressable market may expand. Its entertainment centers represent a great place for in-office workers to mingle and host events.
Of course, RTO is a contentious issue so it’s not a foolproof argument for PLAY stock. Still, the earnings disappointment may be a temporary headwind. If so, Dave & Buster’s should be on your contrarian radar.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
