Making a Play for Dave & Buster’s? Read This First
Headlines this week may have caught some off guard, but there are plenty of negative signs that should give investors second thoughts.
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This week, there’s been a considerable amount of discussion about Dave & Buster’s PLAY. The Dallas, Texas-based amusement arcade and restaurant purveyor made headlines that may have caught some investors off guard.
To clarify, Dave & Buster’s isn’t getting into sports betting. The company is merely providing customers with an app that will allow them to place wagers on its own arcade games.
If folks want to place a friendly bet on a game of Mario Kart or skee ball, there’s an app for that. Of course, there’s nothing stopping customers from doing that on their own, without an app, right now.
Investors shouldn’t be impressed by this news, but is Dave & Buster’s worth a look?
The stock reached a multi-year high (point A) just last month, before pulling back after a disappointing earnings report. Since April 3, shares of Dave & Buster’s have dropped by 22%.
According to the chart, Dave & Buster’s has more downside ahead. The stock could become tradable if it falls to the $47/$48 area, a decline of about 10% from Wednesday’s close.
There are two support levels in that area. The stock’s 200-day moving average (red) comes in at $47.50 (point B), just pennies below the stock’s January lows (point C). The stock’s year-to-date intraday low is $47.90 (black dotted line), which provides additional support.
While Dave & Buster’s might be tradable in the high $40s, there are plenty of negative signs that should give investors second thoughts.
The first is the stock’s recent sharp decline, which occurred on above-average volume (shaded yellow). Traders have been selling this stock with gusto, which is not an encouraging sign.
Second is the ease with which Dave & Buster’s fell below its 50-day moving average (blue). Buyers didn’t even put up a fight, and the stock slid below that key indicator as if it wasn’t there. Dave & Buster’s 50-day moving average is turning south, another negative sign (point D).
How could Dave & Buster’s fortunes turn so quickly? While it’s a great place for good times, the product isn’t a necessity. You could say the same about Starbucks SBUX, which was hammered for a 15.8% loss on Wednesday.
Consumers are dealing with a decline in purchasing power. According to the St. Louis Fed, real earnings peaked in the second quarter of 2020, and continue to trend lower.
That’s a negative for the entire consumer discretionary sector, and Dave & Buster’s is no exception.
At the time of publication, Ponsi had no positions in any securities mentioned.
