Who invests in arcades right now? Bad enough that the ongoing pandemic has left many of them shuttered—what few there were of them left, anyway—but this isn't 1992 anymore. Most arcades are a thing of the past, replaced by readily-accessible online gaming. There's still a place in a lot of hearts for arcades, though, as proven by the existence of Dave & Buster's (NASDAQ:PLAY). Though the company is slumping right now, there's a growing body of analysis that suggests this is an opportunity rather than the beginning of the end.
A Company Cornered?
On the surface, things look bad for Dave & Buster's right now. The company recently announced plans to lay off over 1,300 employees—though it's kind of a surprise that it had that many employees to lay off in the first place—and there was more bad news to follow. The 1,369 employees now-fired outright were formerly furloughed, which isn't exactly a great sign.
Oddly enough, the announcement of layoff plans didn't give the share price a bump up at the time, which is commonly seen as it's considered a willingness to “make the tough choices” and succeed despite adverse conditions. That may have been lost in the background static of the larger news, though, that Dave & Buster's might ultimately have to file for bankruptcy if it can't set up some new arrangements with lenders. Though that might not necessarily mean a complete shutdown of all outlets—some bankruptcy uses just allow for restructuring and reopening—it's certainly a possibility.
Hope Springs Eternal
As bleak as that picture may seem, it may portend an opportunity rather than signal an approaching disaster. Looking at a geographical breakdown of the firings, they seem focused on states in which lockdowns are still a larger part of life than most would expect. Michigan, for example, lost just over 300 employees in Livonia, Utica and Kentwood. Massachusetts lost a similar number in Braintree, Natick and Woburn. Colorado lost a little under 240 workers in Denver and Westminster, and the rest were scattered throughout other locations.
Moreover, Dave & Buster's made it clear that it was not actually closing the stores listed, but rather responding to ongoing conditions that kept businesses closed. The workers would be rehired later, as circumstances and government mandates permitted. A statement from the company noted that it did not anticipate how long the lockdown orders would last, or how far they would reach in many cases.
There's also a solid consensus from analysts: right now, our own research finds 11 analysts have ratings for the company, and not one of them is a “sell”. Five have “hold” ratings, and the remaining six are “buy”, which makes buying a justifiable decision at this point. Price targets, meanwhile, vary wildly; the company is currently selling at $16.39, up from yesterday's close of $14.12, and recently-established targets range from a pessimistic $7 per share to a more reasonable $28. The consensus target is $22.95, which means significant upside potential is afoot.
That's Where the Opportunity Kicks In
Remember when restaurants and stores were starting to reopen on a wide scale, back around June? There were claims that “pent-up demand” would kick in and send floods of people back into these operations, or at least as much as said businesses could handle by government mandate. There were signs that pent-up demand did indeed kick in, if only in the short term. The notion that something similar could happen for Dave & Buster's, once all the government training wheels are finally flung aside, isn't out of line.
We've already seen that the company's lenders are willing to work with the company; reports noted that there was a short-term debt-relief deal established that runs until November 1. With Dave & Busters expecting that it should be back up and running by December, there may be a little more wiggle room left, though not much. If that pent-up demand kicks in, like it did in other reopened sectors, then there could be some hope afoot.
Even if it files for bankruptcy, and sticks to the restructuring, it may come out of the deal better off. The company is at least somewhat diversified, with half its revenue coming from the games, a third from alcohol, and the remaining sixth or so coming in from food and beverages minus the alcohol. It may be something of a risky proposition, but with share prices down following the layoff announcements and a potential for a larger restart to hit soon, it could be worth considering. That and there's a certain peace-of-mind benefit to knowing you tried to keep a way of life alive; it's not like there are many arcades out there any more.
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