Dave & Busters Entertainment (NASDAQ: PLAY) has had a rebound brewing for years. The company has worked diligently to overcome pandemic-inspired woes to become more prominent, stronger, and more profitable, yet the stock price lags its peers by a wide margin. One reason may be the analysts who are less than enthusiastic about the name.

They rate it a Moderate Buy, but only seven cover it, and they have not been outspoken over the last 12 months. The upshot is that they see a solid 35% upside for the stock, given the proper catalyst. The takeaways from the Q1 report could be that catalyst given the signs of stabilization and record amounts of cash flow. 

Dave & Busters Has Mixed Quarter, Shares Pop

Dave & Busters had a mixed quarter but let's be fair. The $597.3 million in net revenue is up 3.8% on an adjusted basis and missed the consensus by roughly 100 basis points, but it is a record and well above the pre-pandemic levels. The addition of Main Event drove top-line growth to 32.4% on a reported basis despite the 4.1% decline in comp sales.

The decline in comps is not a positive factor, but this is compared to last year's post-pandemic surge and is 10.3% better than in 2019. Adding four new stores aided revenue, and the company says it signed two agreements for 20 new stores in the International segment. 

The news gets better as you move down the report. The margins contracted compared to last year but far less than expected. The salient point is that operating income and adjusted EBITDA set records, and the GAAP EPS was well above the Marketbeat.com consensus. GAAP EPS came in at $1.45 or $0.17 better than expected and a dime better than last year. 

The company doesn't give guidance but has clear momentum and plans to open more stores in 2023. The company made some comments revealing confidence in the business's health and ability to continue investing in growth. Among them are an acceleration in repurchases that bring the YTD figure to $200 million or about 11.8% of the shares outstanding.

Assuming the business rebound continues, Dave & Buster's could quickly max out its current authorization before the end of the calendar year. The company may increase the authorization and add another catalyst in that scenario. 

"As a testament to the conviction we have in the long-term success of our business and the value we see in our shares, we have repurchased $200 million of common stock thus far in fiscal 2023, reducing our shares outstanding by nearly 12%," said Chris Morris, Dave & Buster's Chief Executive Officer.

Institutional Support Is High: Dave & Busters Is Tightly Held 

The institutional activity is among the most telling of any stock in 2023. The company has a high 99.2% institutional interest that has grown considerably over the past few quarters. The institutions have been net buyers in the ratio of 2.5:1 versus sellers since mid-2023, and there is no reason to think that will change now. This activity has the market bottom at $32, confirmed numerous times in the last two years. 

The stock is up another 5% following the Q1 release and may continue higher. The move confirms a bounce from the $32 level that began the day before the announcement. The indicators are consistent with an oversold market and are firing bullish entry signals along with the upswing in prices. If the market follows through on this signal, it could take the price to the top of the range. That is nearly $50 and may not be broken until sometime in 2024.