20% of Dave and Buster’s Float Was Sold Short… Then One CEO Pep Talk Triggered a 32% Squeeze

I went to a Dave & Buster’s a few years ago, and I still haven’t recovered. The place smelled like farts and weed, like a Chuck E. Cheese that grew up and made bad life choices. Within ten minutes, my kid had burned through $50 on a card, won a bouncy ball, and asked if we could come back next weekend. I said no, but deep down I respected the hustle.

But hey, apparently my kid’s spending habits mirror Wall Street’s latest love affair with Dave & Buster’s: throwing money at it, hoping for a quick payoff, and pretending they don’t notice the weird smell coming from the corner.

Expectations for Dave & Buster’s were pretty much on the floor. Like when my parents were just praying I’d get into any college… even a community one with a mascot that’s a tire. So when Dave & Buster’s reported a not so hot quarter, no one was shocked. Earnings came in at $0.76 per share (analysts expected $1.01), and revenue dropped 3.5% to $567.7 million. Same-store sales were down 8.3%. But things weren’t as bad as they could’ve been. And in a market where doom and gloom are baked into the price, “not awful” suddenly looks like a win.

Then came the pep talk. Interim CEO Kevin Sheehan got on the earnings call and gave Wall Street the equivalent of a halftime locker room speech. He said performance improved each month of the quarter, Memorial Day weekend was strong, and the “back to basics” strategy is actually gaining traction. There were no fancy projections, just a clear message: we’re turning this gaming ship around.

And what do you know… investors bought the coach speak. The stock jumped 32% on the week, helped by a short-covering rally… because about 20% of the float had been bet against. And when the company didn’t implode? Bears ran for cover, fueling the rally (stock market science).

Dave & Buster’s also showed off some shareholder love, buying back nearly $24 million worth of shares in Q1… about 3% of the float. Over the past year, it’s bought back 15%, showing that management believes the company is undervalued and willing to put money behind it.

That said, this isn’t really a fairytale ending. Margins are still under pressure, debt is high (about 10x equity), and they still don’t have a permanent CEO. But with free cash flow looking solid and comps trending in the right direction, there’s a real shot at full-year growth. And at a forward P/E of 12.1, the valuation leaves room for upside if the turnaround sticks.

Analysts are already adjusting their outlooks, with the first batch of price target upgrades forecasting a 35% upside from where the stock sat before earnings. If Dave & Buster’s can ride that momentum, shares could break through key resistance and level up to the $45 range or higher (key word “if”).

At the time this article was published Stocks.News does not hold positions in companies mentioned in article.