The Short-Squeeze In Dave & Buster's Is On We've had our eye on Dave & Buster's (NASDAQ: PLAY) as a recovery play for some time and that thesis is playing out nicely. While the price action has been...

Dave & Buster's Returns To Growth

We've had our eye on Dave & Buster's (NASDAQ: PLAY) as a recovery play for some time and that thesis is playing out nicely. While the price action has been volatile short-selling and tax-loss selling are mostly to blame because the results have been fantastic. Now, with the Q3 results and outlook confirming what we were seeing earlier in the year, it looks like the short-squeeze is on. The short-interest in this stock was in the vicinity of 15% coming into December and helping to fuel an earnings-driven rally.

Dave & Buster's Rebounds On Mixed Results

Dave & Buster's reported some mixed results but only in relation to the Marketbeat.com analysts consensus estimates. The revenue of $317.98 million missed the consensus but by a slim 55 basis point margin. The metrics we are focused on, however, are the 191.6% growth versus last year and the return to growth on a 2-year basis. The company's revenue is up 6% versus 2019 on the combination of strong comps and new stores. On a comp basis, same-store sales are up 1.1%.

Moving down the report, the details get better. The company reported margin expansion versus last year and two years ago that left gross margin and operating margin above expectations. The 21.5% in gross margin is up 47.4% while the operating income rose a slimmer 2.2% but still up versus 2019. On the bottom line, the $0.21 in GAAP EPS beat the consensus by $0.08, reverses a loss in the previous year, and is more than double the 2019 level with a favorable outlook for the 4th quarter.

The company is only expecting a small gain in YOY revenue due to a reduction in large gatherings which tends to drive business this time of the year. On the flip side, the Omicron variant is turning out to be less harmful than the previous versions and will not likely impact business the way that it might have. In this light, we see upside risk in the guidance and will not be surprised to see the company outperform.

Dave & Buster's Board Authorizes Share Repurchases

If Dave & Buster's results and outlook aren't enough to get the stock moving the new share repurchase program should tip the scales. The board authorized a new $100 million share repurchase plan that is good through the end of next year. The program is worth 6.8% of the market as of the close of trading on December, 7th and we will not be surprised to see it get increased and/or added to later in calendar 2022.

The analysts are also generally on board with this stock although some of the recent action has been bearish. The consensus price target is $48 and implies about 41% of upside but has been edging lower in recent weeks. The most recent report came out post-earnings and includes a drastic price target reduction. Piper Sandler rates the stock a Neutral versus the Marketbeat.com consensus of Weak Buy and lowered its price target to $38 from $53.

The Technical Outlook: Dave & Buster's Has Bottomed

Shares of Dave & Buster's have been pulling back from a high set earlier this year but that trend appears to be over. The Q3 report has shares up more than 7.0% and indicates a Double-Bottom at the $32 level. It is still early in the pattern but, assuming a break above $42.50, we see this stock moving up to $50 and then higher in the long term.