Why Dave & Buster’s Stock Surged Higher Today

What happened

Shares of Dave & Buster’s Entertainment (NASDAQ:PLAY) defiantly surged higher on Thursday, flirting with 52-week highs. The stock finished the day up 12%. But unfortunately, there’s really not a good explanation of what caused the move higher today. 

So what

Generally speaking, stocks go up when there’s more demand for shares than there is supply. Typically, when a stock spikes higher, there’s some news that’s creating the demand that day. Perhaps it’s a press release, a filing with the Securities and Exchange Commission (SEC), or an analysis by a prominent person. But for Dave & Buster’s, none of these things apply today.

A businessman draws an exponential growth curve on a line graph.

Image source: Getty Images.

Dave & Buster’s is going to report quarterly financial results on March 31. The company was one of the hardest hit restaurant stocks in 2020 since its business model (dine-in restaurant plus grown-up arcade) doesn’t work with delivery, meaning a lot of investors have been betting against it by shorting it. In fact, 22% of the stock’s float — which is a lot — was sold short as of March 15, according to Yahoo Finance. And it’s up from February levels.

However, analysts have recently come out in favor of Dave & Buster’s stock. According to The Fly, a Raymond James analyst raised the target price on the stock from $45 per share to $55 per share earlier this week. Considering earnings are next week, this bullish note could be motivating some traders to cover their short positions, which creates demand for shares. And it could also be causing investors to buy shares, hoping for an earnings surprise. 

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PLAY Chart

Three-year returns for Dave & Buster’s stock compared to the S&P 500. PLAY data by YCharts

Now what

While I can’t say with certainty the reason why Dave & Buster’s stock was in demand today, I can say that earnings next week matter a lot for long-term investors. Don’t expect the 2020 numbers to be good compared to 2019. Look for where the company is improving, how its balance sheet is holding up, and listen to management’s plan of action to get things back on track in 2021.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

View more information: https://www.fool.com/investing/2021/03/25/why-dave-busters-stock-surged-higher-today/

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