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Dave & Buster's IPO Looks Like a Bust

Stocks in this article: CHUY DFRG BLMN COSI IRG

Investors though may not look closely because other restaurant IPOs have done well. Chuy's Holdings (CHUY) has gone up over 50% year-to-date. Steakhouse chain Del Frisco's (DFRG) is up roughly 14%, and Bloomin Brands (BLMN), the home of Outback Steakhouse, has gained more than 20% year-to-date.

But there are also cautionary tales out there, such as Ignite Restaurant Group (IRG), which had a much cleaner filing than Dave & Buster's. Ignite went public in May 2012 and within months it turned out the filing wasn't so clean after all. The company improperly accounted for its leases and now has to restate its earnings. The stock has plunged and there is a class action lawsuit from the new shareholders.

Investors should enjoy Dave & Busters as a patron, not as an investment. It's a fun place and a super venue for a teen birthday party. However, if you want some exposure to the restaurant industry for your portfolio, choose a different, more established profit maker like Chuy's. If you're willing to risk a few pennies, Cosi (COSI) could be worth a shot as a turnaround play.

IPO Desktop President Francis Gaskins believes Dave & Busters stock has a good chance for some appreciation from the IPO price, but he believes investors should look to take profits at first chance. He's skeptical of the company's ability to stay in the black. Gaskins also isn't impressed that Oak Hill wants the public to bail it out of a bad investment.

-- Written by Debra Borchardt in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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