To the annoyance of some shareholders, Dave & Buster's Entertainment (NASDAQ:PLAY) shares are down a considerable 81% in the last month. And that drop will have no doubt have some shareholders concerned that the 82% share price decline, over the last year, has turned them into bagholders. What is a bagholder? It is a shareholder who has suffered a bad loss, but continues to hold indefinitely, without questioning their reasons for holding, even as the losses grow greater.
All else being equal, a share price drop should make a stock more attractive to potential investors. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. The implication here is that long term investors have an opportunity when expectations of a company are too low. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.
See our latest analysis for Dave & Buster's Entertainment
How Does Dave & Buster's Entertainment's P/E Ratio Compare To Its Peers?
Dave & Buster's Entertainment's P/E of 2.90 indicates relatively low sentiment towards the stock. We can see in the image below that the average P/E (11.3) for companies in the hospitality industry is higher than Dave & Buster's Entertainment's P/E.
Dave & Buster's Entertainment's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Since the market seems unimpressed with Dave & Buster's Entertainment, it's quite possible it could surprise on the upside. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
P/E ratios primarily reflect market expectations around earnings growth rates. When earnings grow, the 'E' increases, over time. That means even if the current P/E is high, it will reduce over time if the share price stays flat. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
Dave & Buster's Entertainment's earnings per share fell by 4.9% in the last twelve months. But it has grown its earnings per share by 13% per year over the last three years.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. That means it doesn't take debt or cash into account. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.
Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.
Dave & Buster's Entertainment's Balance Sheet
Dave & Buster's Entertainment's net debt is considerable, at 245% of its market cap. This is a relatively high level of debt, so the stock probably deserves a relatively low P/E ratio. Keep that in mind when comparing it to other companies.
The Verdict On Dave & Buster's Entertainment's P/E Ratio
Dave & Buster's Entertainment trades on a P/E ratio of 2.9, which is below the US market average of 12.2. When you consider that the company has significant debt, and didn't grow EPS last year, it isn't surprising that the market has muted expectations. Given Dave & Buster's Entertainment's P/E ratio has declined from 15.6 to 2.9 in the last month, we know for sure that the market is more worried about the business today, than it was back then. For those who prefer invest in growth, this stock apparently offers limited promise, but the deep value investors may find the pessimism around this stock enticing.
Investors have an opportunity when market expectations about a stock are wrong. If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. So this free visual report on analyst forecasts could hold the key to an excellent investment decision.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
2020-03-20 14:26:00Z
https://finance.yahoo.com/news/dave-busters-entertainments-nasdaq-play-142611759.html
CBMiVWh0dHBzOi8vZmluYW5jZS55YWhvby5jb20vbmV3cy9kYXZlLWJ1c3RlcnMtZW50ZXJ0YWlubWVudHMtbmFzZGFxLXBsYXktMTQyNjExNzU5Lmh0bWzSAV1odHRwczovL2ZpbmFuY2UueWFob28uY29tL2FtcGh0bWwvbmV3cy9kYXZlLWJ1c3RlcnMtZW50ZXJ0YWlubWVudHMtbmFzZGFxLXBsYXktMTQyNjExNzU5Lmh0bWw
Bagikan Berita Ini
0 Response to "What Is Dave & Buster's Entertainment's (NASDAQ:PLAY) P/E Ratio After Its Share Price Tanked? - Yahoo Finance"
Post a Comment