Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) shares have had a horrible month, losing 28% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 45% in that time.

After such a large drop in price, Dave & Buster's Entertainment may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 12.4x, since almost half of all companies in the United States have P/E ratios greater than 20x and even P/E's higher than 35x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

While the market has experienced earnings growth lately, Dave & Buster's Entertainment's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Keen to find out how analysts think Dave & Buster's Entertainment's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Dave & Buster's Entertainment?

There's an inherent assumption that a company should underperform the market for P/E ratios like Dave & Buster's Entertainment's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 25%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 304% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next year should generate growth of 30% as estimated by the ten analysts watching the company. That's shaping up to be materially higher than the 15% growth forecast for the broader market.

In light of this, it's peculiar that Dave & Buster's Entertainment's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

The softening of Dave & Buster's Entertainment's shares means its P/E is now sitting at a pretty low level. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Dave & Buster's Entertainment's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Dave & Buster's Entertainment (1 is a bit concerning) you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.