Dave & Buster’s (PLAY) May Offer Upside for the Daring Contrarian

One of the early and sustained victims of the COVID-19 crisis, restaurant and entertainment center Dave & Buster’s (PLAY) has long been attempting to spark positive momentum. Initially, the shock of the pandemic led to government agencies cracking down on non-essential activities, dramatically sinking its core revenue channel.

As COVID-related restrictions eased, the framework for PLAY stock improved substantially. For instance, revenue for the fiscal year ended January 2022 came inside 4% of the company’s pre-pandemic sales record. However, Dave & Buster’s also suffered indirectly from revenge travel or the phenomenon where consumers bid up experience-based entertainment solutions to account for lost time in quarantine.

Stated differently, going to eat out at Dave & Buster’s represented a mundane experience. It was the go-hard-or-go-home effect.

However, as inflation and other economic woes materialized, the incentive to continue down the path of revenge travel diminished considerably. With layoffs impacting some of the biggest names in business, many folks rightfully felt concerned about the future. While consumers were no longer vacationing with bravado, they weren’t exactly barreling down the doors of Dave & Buster’s either.

Still, the company’s latest earnings results for the third quarter may shift perceptions of PLAY stock for the better. According to Zacks Equity Research, Dave & Buster’s delivered earnings per share of 4 cents, beating the Street’s consensus target of 3 cents per share.

In addition, the restaurant and entertainment center “posted revenues of $481.21 million for the quarter ended October 2022, surpassing the Zacks Consensus Estimate by 1.61%.” In the year-ago period, sales came out to just under $318 million.

Still, with Q3 of last year’s EPS coming out to 21 cents, some investors weren’t impressed. PLAY stock dipped 2.8% on the Dec. 6 session while slipping 3.9% in afterhours trading.

PLAY Stock Captures Unusual Stock Options Volume

Following the market close on Tuesday, PLAY stock represented one of the highlights in Barchart.com’s screener for unusual stock options volume. This metric shows the difference between the current volume and the average volume over the past month. Primarily, traders use this data to decipher which securities may be due for big moves ahead.

Specifically, PLAY’s volume hit 15,047 contracts against an open interest reading of 44,077. Call volume hit 8,329 versus put volume of 6,718. The implied volatility (IV) rank hit 34.53%, which indicates the (at the money) average IV relative to the highest and lowest values over the trailing one-year period.

To quickly get everyone on the same page, IV signifies the expected volatility of a stock over the life of an option. As certain influencing factors for the underlying investment changes, the IV will likely change as well. Further, as demand for an option increases, so too will its IV.

The IV low for PLAY stock was 49.34% on April 1, 2022. On May 18, PLAY hit its IV high at 82.55%. Prospective investors should note that per Barchart.com’s technical analysis gauge, it ranks as an average 64% sell. However, near-term indicators (the 20-to-50-day and 20-to-100-day MACD oscillators) suggest that PLAY is a buy.

On the flipside, at time of writing, the put/call open interest ratio for PLAY stock stands at 0.98. Typically, the delineation between bullish and bearish sentiment is 0.70, with figures above this point indicating that more traders overall are buying puts than calls.

Return to Work Might Change Everything

While the core datapoints undergirding PLAY stock present a varied, complex and contradictory picture, over time, Dave & Buster’s could decisively pivot to a northbound trajectory. It may all come down to the mass-scale return to the office.

According to a report from Resume Builder, 90% of companies stated they will require employees to return to the office at least part of the week in 2023. Moreover, a fifth of surveyed firms stated that they will fire workers who do not return.

Prior to the accelerated rise and frequency of layoffs, employees enjoyed significant leverage due to the labor shortage. But as recession fears bubble to the surface, the pendulum of power has now swung toward employers. Therefore, workers may have to play ball in order to keep their income stream alive.

Plus, it’s just a bad time to lose your job, especially over something silly like insubordination.

Though this narrative won’t appeal to folks in the rat race, it may be the much-awaited upside catalyst for PLAY stock. As employees return to the normal drudgery, happy hours and other get-togethers will command a premium. Therefore, in the coming months, Dave & Buster’s might finally start looking interesting again.

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