Our 35% STI Gainer Dave & Buster's At Attractive Entry Price Again

(RTTNews) - Shares of Dave & Buster's Entertainment, Inc. (PLAY) offer a compelling value proposition at the current price. We believe the stock has at least 15% upside from present levels.

PLAY featured on Short-Term Investor on December 7 last year at an opening price of $54.5. In a span of six months, the stock touched a new 52-week intra-day high of $73.48 on June 8, returning 35% to STI investors.

Despite its presence in the troubled casual-dining sector, Dave & Buster's Entertainment bucks the trend by differentiating its offerings and guest experience. The company has reported 27 consecutive quarters of LTM (Last Twelve Months) adjusted EBITDA growth. Quarterly LTM Adjusted EBITDA has grown at a CAGR (Compound Annual Growth Rate) of 20.3% from $80.7 million in Q2-FY10 to $280.6 million in Q1-FY17. ROIC (Return On Invested Capital) has grown from 19.2% in FY14 to 25% in FY15 to 29.8% in FY16.

Transforming its focus to Entertainment from Food & Beverages (F&B), the company operates 100 venues in North America, offering customers the platform to "Eat Drink Play and Watch", all in one location. In 2006, F&B accounted for 56% of the revenue mix, while 44% came from Games. In the LTM Q1-2017 period, Games generated a bigger chunk or 56% of the revenues and F&B contribution declined to 44%.

The new entertainment-focused business model seems to be driving growth for the company. For fiscal 2016, the company claims industry-leading store AUVs (Average Unit Volumes) of $12 million vs. $3 million for Chili's, vs. $4.5 million for Olive Garden, and $8.2 million for Yard House.

Dave & Buster's Gross Profit margins for fiscal 2016 were 82.1%, a 500 plus basis point advantage over the nearest 76.9% for Cheesecake Factory (CAKE), and way higher than the 66.1% reported by Texas Roadhouse (TXRH). Peer group financials are for the LTM period closest to Dave & Buster's FY16 year-end.

Robust returns from new stores make the case for compelling store economics. For 37 new stores opened from FY08 to FY15, average cash-on-cash returns for the first year were 47.2%. This number excludes a Nashville location reopened in FY11. The company targets 5-year average cash-on-cash returns exceeding 25%.

Long-term financial targets include

*Annual New store growth exceeding 10%

*Annual Comparable sales growth of 2%

*Low double-digit total revenue growth

*Low double-digit annual EBITDA growth

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