CEC Entertainment Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of CEC Entertainment (NYS: CEC) , which operates Chuck E. Cheese family restaurants, sank 11% today after its quarterly revenue and full-year outlook disappointed Wall Street.

So what: While CEC's bottom line surged 36% in the second quarter, a disconcerting demand trend has the shares flirting with new 52-week lows. Hurt by weak consumer spending and increased competition from PG-13 movies, CEC posted second-quarter revenue that came in below analyst estimates, with its same-store sales growing a measly 0.3%.

Now what: I'd continue to keep my distance from CEC. Management now sees full-year earnings of $2.75-$2.95 per share, versus Wall Street expectations of $3.03 in per-share earnings. While CEC's valuation might look decent at these levels, that bleak near-term outlook, coupled with a heavy debt load, should require a big margin of safety.

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At the time this article was published Fool contributorBrian Pacamparaowns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool'sdisclosure policyalways gets a perfect score.

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