About Bowlero
We can’t remember the last time it was that we actually went bowling.
Although the founding partners of MacroHint have been to bowling venues in the past and had a blast, with the bumpers only, of course, it’s certainly not one of strong suits nor a consistent occurrence that we find ourselves putting on someone else’s bacteria-filled shoes that don’t fit quite right and hitting the lanes.
But that’s ok.
As mentioned in certain previous stock analysis articles, at the end of the day it doesn’t matter a whole lot whether or not we like what a company does and support it financially but rather if the masses enjoy it and put their money where their mouth is.
This brings us to the formal introduction of America’s largest bowling operator, Bowlero.
What an original name.
Headquartered in New York City, New York, Bowlero has around 300 locations nationwide and evidently, considerable market share in the bowling industry. It is also worth mentioning that the company isn’t just a bowling company, although we imagine that is how it generates the lion’s share of its total annual revenue, but also a leisure and entertainment company in the sense that within its bowling centers it offers value-added experiences through its arcades and restaurants.
Bowlero seems pretty fun and we might just one day have an outing at one of the company’s locations.
But before that, we feel an obligation to determine if this company’s stock is a strike or ball headed towards the gutter.
Let’s commence our financial analysis on Bowlero’s stock (NYSE: BOWL).
Bowlero’s stock financials
Currently trading at a share price of $15, Bowlero has a market capitalization of $2.5 billion along with no readily available price-to-earnings (P/E) ratio and no annual dividend distributed to its investor base at the moment.
While a price-to-earnings ratio as a sort of reference in terms of valuation would be nice, it’s nevertheless cool to see that the company’s share price is presently trading at relatively low levels, however, this doesn’t by any stretch indicate that its stock is undervalued or trading at or near fair value.
In fact, the stock could be wildly overvalued.
We just don’t immediately know given the absence of its price-to-earnings ratio.
However, we do know that there are two main likely reasons that the company has no readily available P/E ratio.
Either the company isn’t net profitable or any earnings that it is retaining are being dumped back into the business in order to fund future growth and expansion and also pay its current bills and other expenses.
We presume the latter to be true, as the bowling business likely requires massive amounts of upkeep and innovation in order to keep people interested in coming to Bowlero, which isn’t necessarily a bad thing but more so a standard within the bowling industry, like it or not.
Additionally, as the company continues expanding into value added categories like entertainment and dining within its bowling centers, costs will undoubtedly rise and Bowlero’s executive team would be smart to be currently focused on reinvesting earnings in order to responsibly fund this side of the business.
All in all, we have no beef with the way Bowlero’s management is funding its business in this regard, if our assumptions are correct.
Shifting gears over to the company’s balance sheet, Bowlero’s executive (bowling) team is in charge of around $1.8 billion in terms of total assets as well as approximately $1.6 billion in total liabilities.
For all of the costs that this company has likely incurred, especially during the onset of the COVID-19 lockdowns, we don’t view this as an all too surprising or poorly structured balance sheet, as we’re glad to see that Bowlero’s total assets outpace its total liabilities, although not by a particularly wide margin.
This is a more than appropriate juncture to state the obvious yet critical; this company is just about as COVID-19 sensitive as it gets.
As many allude that there will be more pandemics and public health emergencies going forward, if they are correct, it is our opinion that this company’s business and subsequently its stock will once again have a cruel reckoning.
While many businesses across multiple sectors have learned how to largely curtail the future negative impacts of another public health emergency and keep its doors open, at the end of the day Bowlero’s business is an in-person one that relies on consumers coming into their alleys and renting out lanes and purchasing other goodies that the company has to offer.
No matter how creative or innovative Bowlero tries to get, at least in the short-term, this company doesn’t have many (if any) alternatives or ways to keep its business at full speed if another lockdown arrives.
Suffice it to say this is concerning to us as prospective shareholders.
Moving onto the company’s income statement, Bowlero’s total annual revenue figures over the last handful of years haven’t been as bad as we thought, again, especially during the onset of the COVID-19 pandemic, however, they still indicate that our assumptions regarding its sensitivities to lockdowns are valid.
Specifically, according to TD Ameritrade’s platform, the company’s total revenue in 2019 stood at $672 million, dipping down the following year to $520 million to its 2021 (most COVID-19 sensitive year) reported revenue figure of $395 million, which to us is a fairly steep decline from its past figures.
Following 2021, the company reported total revenues of $912 million, which is certainly a fantastic leap from its 2021 slump.
While we do think this surge in revenue can largely be attributed to pent up demand for friends, families, and bowling teammates alike to get back to doing the things they enjoy the most, we don’t view this growth in revenue to be sustainable, at least in the short run.
Perhaps over the long haul Bowlero can reach that amount of sustainable growth and whiz past one billion in total revenue, however, we personally don’t think that enough people have found a passion for bowling over the last year and will continue consistently bowling, as it is a rather large discretionary consumer expense.
According to the company’s cash flow statement, our concerns regarding heightened expenses and costs seem justified by the numbers given that Bowlero’s net income has been in the red over the last four years.
COVID-19 undoubtedly had an impact on these figures but we were somewhat surprised to find that the company’s net income was as negative as it was in both 2019 and 2020, sitting in the neighborhood of -$5 million and -$90.8 million, respectively.
However, upon further thought this could be tied to the company expanding into new geographies and simply incurring some cash burn in the process, which actually makes perfect sense to us.
It can also be seen on the company’s cash flow statement that its total cash from operations were positive between 2019 and 2022, which isn’t a bad sign and implies that the company, even through some financial stress can generate a decent amount of cash.
Bowlero’s stock fundamentals
From the perspective of profitability, Bowlero is behind the curve a bit but we’re not awfully concerned, oddly enough.
For instance, according to TD Ameritrade’s platform the company’s trailing twelve month (TTM) net profit margin is -4.19% compared to the industry’s average of 6.84%.
Yes, we view this as a material difference, however, with the current rate at which Bowlero is expanding and the foundation and moat it is building and enforcing against its national and regional competitors, it makes sense that the company’s trailing twelve month net profit margin is slightly in the red, as it takes time to realize a positive net profit margin in the space when you have as large of an operation as Bowlero does.
With time and continued execution, especially including its aforementioned value-added services and offerings, we project the company’s TTM net profit margin to surpass that of the industry, hopefully in the intermediate-term, or in the next three to five years.
On the basis of TTM returns on assets and investment, Bowlero’s sing a similar tune, modestly trailing the industry, however, for the reasons mentioned above we objectively think the company has an opportunity to turn this around in the years to come, although it most definitely will not happen overnight.
Should you buy Bowlero stock?
The fact that this company has little to no revenue barriers against public health emergencies and the lockdowns that follow scares us.
While this company has some pretty sturdy financials backing it, including its solid balance sheet, strong total annual cash from operations and others, we’re not confident enough in the bowling industry as a whole to thrive in a world where COVID-19 and other public health threats exist and seemingly persist.
Additionally, while we see the company’s core financials as strong overall, it is our view that the company has to do a lot of work just to keep its target audience coming back.
Of course there are people who love and are loyal to bowling and provide a steady, reliable stream of income for Bowlero, but we don’t see that as enough to keep the business growing if consumers as a whole across the United States pick up on other less expensive hobbies and recreational activities.
Bowling is just a tough industry to operate in, even if you’re a leader in the sector, especially in the current recessionary and COVID-19-filled environment.
Given all of this information we are most comfortable in giving Bowlero’s stock a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.