Dave & Buster’s Entertainment (NASDAQ: PLAY) jumped 15% Tuesday morning after the company reported a large earnings beat for Q1 and announced a new CEO.
After the stock languished for a year of underperformance, investors are hoping the positive momentum from the first quarter and new leadership at the helm will help the stock get back on track. And an interesting chart pattern may confirm the stock is headed in a positive new direction.
PLAY reported Q1 adjusted earnings of $1.04 per share on revenue of $332.2 million, beating analysts’ consensus estimates of $0.94 and $321.6 million, respectively. Not only that, but they reported revenue up 9.2% from the same period last year.
The company opened 6 new stores during the first quarter, which is more openings than any previous quarter. However, they did report a -4.9% drop in same-store sales, though that was a bit better than the -5.7% drop analysts were anticipating.
On the call, the company also announced that CEO Steve King will be retiring at the end of Q2 and will be replaced by CFO Brian Jenkins. King has been with Dave & Buster’s for 12 years and has had a successful track record at the company.
Under King’s leadership, PLAY doubled its store count and revenue, and more than quadrupled its earnings before interest, taxes, depreciation, and amortization.
King said in a statement, “We continue to be pleased with our new store performance and are confident in our unit growth guidance for the year. The upcoming launch of our proprietary virtual reality platform, and the new 100 percent Angus Butcher’s Blend burger are just two examples of improvements in our overall offering.”
The company—which has been described as Chuck E Cheese for adults—is in the process of rolling out new virtual reality games. Right now, it is launching the Jurassic World VR Expedition in the run-up to the release of the Summer blockbuster, Jurassic World: Fallen Kingdom, which hits theaters on June 21.
According to CEO King, more VR experiences will be coming. “Our plan, as we mentioned before, is to build a library of proprietary VR content that will enable us to capitalize on this opportunity for many years,” he said.
On the news, SunTrust Robinson Humphrey raised its price target from $54 to $62 on increased confidence in same-store sales growth and “given our view that the June 14 VR launch will be a meaningful sales catalyst,” analysts wrote in a note.
Now to that chart pattern. What I’m seeing tells me Dave & Buster’s is on a new uptrend, let’s take a look.
What I’m seeing here is an island reversal bottom pattern. This type of bottoming pattern is marked by an exhaustion gap down on one end on increased volume, and a breakaway gap on the the other after an “island” of sideways price action.
Typically, as we can see with PLAY’s case, the two gaps at either ends of the pattern occur at about the same price level.
This particular pattern is a good indicator of a reversal of the previous trend and marks a major change in sentiment, which is very good news for PLAY.
For a minimum price target for this pattern, measure from the base of the candle of the gap down to the end of the wick of the lowest candle in the island, then project that up from the base of the candle on the gap up. In PLAY’s case, that gives us a minimum price target of around $61.
To further confirm that this pattern has established a solid bottom, I looked to PLAY’s weekly chart. What I found is that this bottoming pattern occurred at the 61.8% retracement of the previous bull run on Dave & Buster’s, confirming that this deep correction is likely finally over and a new uptrend is just beginning.