Gaming Margins and a K-Shaped Economy

SPEAKER_1 (0:00)

Welcome back to Next Gen Investing. It's time to welcome in our next guest. That's Matt Maley, Managing Director and Chief Market Strategist for Miller-Tabeck, as well as the founder of the Maley Report. And he's here to help us preview Dave & Buster's, the head of its earnings, which are slated for after the close today. Good afternoon to you, happy Monday, Matt.

I'll just yield you the floor. This is a stock that's been on a pretty tough run the last several years in a business that's perhaps being disrupted by technologies and other things that distract us. But curious your thoughts as we head into what is another pretty consequential earnings report.

Matt Maley (0:38)

Yeah, this is definitely something where, well, actually, we might be able to see something where the expectations are so low that they might actually be able to bounce this time around. But there's a company that has missed estimates seven out of the last eight quarters. And in over the last 12 months, their earnings estimates have come down 80 percent. So, it's, I mean, not only is the stock down 60 percent, but it's basically on its lows. I mean, we haven't seen any kind of bounce like we've seen in the rest of the market on a couple of different occasions this year. So, this is something that is kind of the setup that usually gives people an opportunity to get a little bit of a bounce.

The thing, though, is that, of course, is what is going on, like you mentioned. What is technology? What kind of impact has that had on it? Their gains and stuff is where most of their margins are, or at least the best part of their margins, not their food aspect.

Those margins have been coming down, or the use, I'm sorry, the use and those gains have been coming down versus the number of people who have been going into eat food in their restaurant. So it's a, and then of course, when you look at what's going on with the consumer, at higher gasoline prices and low consumer confidence levels, it does make it a tough situation. But for those who like to take contrarian bets, it might give us a little bit of a surprise this time around.

SPEAKER_1 (2:05)

Well, what I think is fascinating too, as you mentioned, sort of the stats around the performance fundamentally over the last two years or eight quarters, seven out of the last eight being disappointments on that front.

It's actually been up half the time, though, even in that environment, and the average move, as I was saying, kind of going into the break, I'm not sure if you caught it, is nearly 12 percent. So, this is a stock that gets its time in the sun every three months, as we talk about it around these earnings events, but it makes the most of it. It moves significantly on these numbers. When we try to think about the business model, though, Matt, I always have trouble sort of bucketing this one. I know it skews its demo maybe a little bit higher in terms of age than we maybe give it credit for. It's sort of the in-person, entertainment, kind of arcade environment, but it's also a restaurant and bar at the same time. When you look at it and you try to compare it to its peers in the space, does it really have a clean pier? Is this more of a restaurant or is this more of an event like an entertainment type of a company?

Matt Maley (3:20)

You make a very good point because as much as they're definitely a restaurant, and I've been there, the foods are good, food's good, typical burger joint.

The thing is though is that their margins, the better margins are in the gaming area or the entertainment area as they like to call it. Now, it's going to be interesting what happens this time because they've had some new games that they've put out, some of it having surrounded the World Cup. So we'll see if that can be helpful. And also, they talked a lot last quarter about having, cutting back on their expenses. In other words, lowering their expenses. And if they have been successful at doing that, that could finally give the stock a little bit of a boost. And like I said, everybody seems to be on one side of the boat. They're all negative on this thing. So, as you mentioned, it seems to move in both directions, despite its intermediate term, woes.

So, I'm not one who would want to be short this name going into this report.

SPEAKER_1 (4:25)

Yeah, Matt, and on that front, you already mentioned sort of the thesis behind the thought, which is, hey, maybe this is contrarian, maybe it's overdone, maybe there's opportunity here for a bounce. With that being said, as a market strategist, as someone who's thinking about, you know, maybe where to put capital work, would you be thinking this is more of a short-term trade opportunity or is this sort of a value investment opportunity or sort of a mixture of both?