Dave & Buster’s Stock: A Short-Squeeze PLAY for Q2

Key Points

• Dave & Buster's mixed results highlight the changes underway; growth is expected in 2025.
• Cash flow remains healthy and sufficient to sustain the growth plans, balance sheet, and buybacks.
• Analysts, institutional, and short-selling trends suggest this stock could rebound and begin to rocket higher in Q2.

Dave & Buster’s NASDAQ: PLAY has faced many headwinds, many self-inflicted, but those days are over, and the restaurant stock is set up for a significant advance.

Not only is the board and executive team, including interim CEO and board member Kevin Sheehan, “laser-focused,” but they are “unwinding mistakes” made by the prior CEO. Those include numerous changes to the core operation that have impacted its growth and profitability. 

The takeaway in calendar Q2 2025 is that the company’s Back to Basics strategy is gaining traction. The strategy has Dave & Buster’s set up to revert to growth, improve profitability and free cash flow, and drive value for investors.

This, along with the 20% short interest, has the stock set up for a solid stock price increase, if not an outright squeeze, that could quickly add 30% to 150% of value. 

Dave & Buster’s Mixed Results Set Stage for Growth

Dave & Buster’s had a mixed quarter in Q4 and for the year, with quarterly revenue down 10.8% year-over-year and 200 basis points shy of MarketBeat’s reported consensus. However, the decline is versus a tough comp, including an extra week, which more than offsets the miss. Adjusted for it, revenue outpaced consensus by 400 basis points, and margin strength is also present. 

Margin news is better. The company’s margins contracted significantly, but less than expected compared to the prior year. The net result is a 16.2% decline in adjusted EBITDA and adjusted EPS of $0.69, as expected, versus the top-line miss. The company did not give specific guidance for Q1 or F2025 but was optimistic with their comments.

CEO Sheehan says business trends improved sequentially in the first portion of FQ1 and are expected to continue improving as the year progresses. The guidance includes a forecast for increased store count in addition to the 14 opened in F2024, with at least six in international markets. 

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Buybacks Have Improved Dave & Buster’s Shareholder Leverage

Among the highlights from 2024 is the completion of an aggressive share repurchase authorization. The total amounted to $172 million, about 5 million shares or 12.4% of the 2023 year-end share count. The impact of dilution offsets it to a degree, but it has a minimal impact.

The reported diluted count is down roughly 10% at the end of the fiscal year and will likely fall by another significant figure in 2025. The remaining authorization is just over $100 million or about 16% of the market cap, with shares near $16. 

Analysts' sentiment trends impacted Dave & Buster’s share price in 2024 and early 2025, aiding the downdraft in price action, but the market has overcorrected. The lowest analyst price target tracked in early April is $21; it is the most recent target issued and is 30% above the pre-release price action. A potential catalyst in 2025 is for analysts' sentiment to improve and aid the rebound in price action. 

Dave & Buster’s Rises After Q4 2024 Release

Dave & Buster’s stock price rose more than 6% in early premarket trading following the Q4 release and may be ready to rebound. The market is deeply oversold at these levels, and indicators have diverged from the lows, setting it up for a bullish swing in the price action.

The critical resistance points are near $17.35 and $21.50; if the market can move above them, it should be able to continue moving higher in Q2 and 2025. 

If not, this market could remain range-bound due to the global macroeconomic situation despite its primarily domestic restaurant business. There is a risk of increased food costs, but sourcing can mitigate them.