From a happenstance glimpse, the investment prospect for American restaurant and entertainment business Dave & Buster’s Entertainment (PLAY) seems rather dim. Since the beginning of the year, PLAY stock fell almost exactly 10%. During the same period, the benchmark S&P 500 index gained nearly 12%. Thus, a basket of boring blue-chip securities represents a far better catalyst, which is hardly a confidence-inspiring narrative.
At the same time, PLAY stock also suffered disproportionately from the COVID-19 crisis. As an enterprise specializing in high social contact activities, the pandemic-fueled mitigation protocols – which effectively shut down non-essential travel on a temporary basis – could not have been a worse headwind for Dave & Buster’s. Still, burgeoning social normalization trends imply that the embattled company may surge back in relevance.
To be sure, PLAY stock represents a risky endeavor. With the Barchart Technical Opinion indicator rating shares an 88% sell, one would be foolish to bet everything on this speculative idea. At the same time, some positive factors – including rumblings in the derivatives market – suggest contrarians may have an upside opportunity here.
Options Traders Appear Optimistic Despite the Red Ink
Following the close of the June 5 session, PLAY stock represented one of the highlights on Barchart’s screener for unusual stock options volume. Specifically, total volume hit 2,941 contracts against an open interest reading of 20,203. The delta between the Monday session volume and the trailing one-month average metric came out to 175.63%.
Drilling down, call volume hit 1,944 contracts versus put volume of 997. This pairing yielded a put/call volume ratio of 0.51, which on paper favors the bulls. Admittedly, it’s not necessarily the most decisive statistical magnitude. However, other technical indicators suggest that enthusiasm could be brewing.
Currently, the put/call open interest ratio comes in at 0.78. Based on historical data (with the ratio hitting 1.20 in mid-May), the decline theoretically represents a rise in optimistic sentiment. Adding to this narrative, options flow data from Fintel shows that on May 18, traders sold put contracts on multi-sweep transactions, which features bullish overtones.
On the fundamental side, more experts have argued for the bullish case undergirding PLAY stock. According to Zacks Equity Research, the investment resource stated earlier in April that “Dave & Buster's digital initiatives are likely to drive growth. The company believes it can drive traffic by enhancing in-store and out-of-store customer experience via digital and mobile strategic initiatives and deploying better technology.”
Last month, MarketBeat’s Jea Yu succinctly pointed out that Dave and Buster’s restaurants offer immersion and experiential dining and entertainment experiences that “can’t be replicated at home. Anyone who’s been to a location can attest to that.”
Indeed, while investors can appreciate management’s efforts to pivot toward out-of-store digital initiatives, such offerings are a dime a dozen, especially in the post-pandemic era. Further, rising normalization trends should augment the core in-store experiences, thus potentially boosting PLAY stock.
The Return to the Office Should Cynically Lift PLAY Stock
Primarily, the main criticism about PLAY stock centers on its in-store business not being as relevant in the post-pandemic environment as it was in the pre-pandemic years. Obviously, this concern carries much validity. With millions of white-collar workers still operating remotely, Dave & Buster’s loses much of its happy hour-related addressable market.
However, that might be changing for several reasons. For one thing, work from home has been terrible for the vital office-adjacent economy. And it’s not just about coffee shops and restaurants. Businesses such as auto repair services may suffer as fewer people drive as much anymore, leading to extended lifespans of vehicles on U.S. roadways.
Moreover, several companies have already announced a return to normal, mostly through hybrid work schedules. Over time, as economic circumstances may get challenging, more enterprises will likely recall their workers. And those that initiated hybrid schedules will probably then demand full in-office schedules.
Finally, mass layoffs may force workers to take the hint. Sure, many if not the vast majority of corporate employees absolutely hate the thought of being recalled. However, the longer they hold out, the more they risk standing out for the wrong reasons.
When push comes to shove, the worker bees will probably relent. Prior to that point, contrarians may benefit from exposure to PLAY stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
