When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) as an attractive investment with its 13.6x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Dave & Buster's Entertainment has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

How Is Dave & Buster's Entertainment's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Dave & Buster's Entertainment's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 4.6% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 13% during the coming year according to the ten analysts following the company. With the market predicted to deliver 15% growth , the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Dave & Buster's Entertainment's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Dave & Buster's Entertainment's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Dave & Buster's Entertainment currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Having said that, be aware Dave & Buster's Entertainment is showing 2 warning signs in our investment analysis, and 1 of those is concerning.

If you're unsure about the strength of Dave & Buster's Entertainment's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.