At a time when the S&P500 and other major market indices are all down sharply, there’s an under-the-radar growth stock that’s quietly rising — bowlero corp (NYSE: BOWL). While a bowling alley operator might not sound as exciting as the next hot SaaS stock or electric vehicle game, Bowlero’s gain of over 50% so far this year is nothing special.
Bowlero also recently caught the attention of JPMorgan Chase (NYSE:JPM), which initiated coverage of the stock with a buy rating. JPMorgan’s price target of $17 implies upside potential of almost 40% from today’s levels. Let’s take a look at this upcoming growth stock and why shares could keep rolling.
Based in Mechanicsville, Pennsylvania, Bowlero was founded in 1997 and went public in 2021 via a SPAC merger. The $2 billion company operates 317 “bowling centers” in the United States, Canada and Mexico, making it the largest owner and operator of bowling centers in the world. Brands under the Bowlero umbrella include Bowlero, AMF and Bowlmor Lanes. Bowlero is also home to the Professional Bowling Association (better known as the PBA Tour), the top professional bowling league in the world, which it acquired in 2019.
By bringing together some of the top bowling alley chains and the world’s largest professional bowling league, Bowlero is building a publicly traded bowling powerhouse. Bowling looks like a good market to lead as consumers increasingly seek to go out, enjoy themselves and spend more on experiences and entertainment as COVID-related restrictions have eased for several years.
American Express (NYSE:AXP) is a great barometer of the state of the American consumer and recently reported record member spending, “led by a strong recovery in travel and entertainment.” The American Express CEO also said that consumers may be spending less on goods, but they are making up for it by spending more on experiences.
Beyond entertainment spending in general, revenue for the bowling industry in particular has been on a solid upward trend over the past decade. While it may not have the same compound annual growth rate (CAGR) that we’re seeing in some high-tech industries, industry-wide revenue grew at a slow but steady CAGR of 4.1% between 2010 and 2019.
This shift toward experiential spending appears to be reflected in Bowlero’s numbers. In its most recent quarter, revenue rose 68.3% year over year. While this number may seem artificially high because the company was coming through a quarter in which COVID was still wreaking havoc on live entertainment, note that this number still represents 72.2% “pre-COVID” revenue growth versus the same quarter in 2019. Revenue improved 53% compared to before the pandemic. Same-store sales measures sales growth at locations that have been open for at least a year, so it filters out the impact of new stores bringing in new revenue and is a good way to look at the overall health of consumer discretionary companies.
Roll up the industry
With 317 bowling centers in its portfolio of brands, Bowlero is the 800-pound gorilla in the bowling industry — and about eight times the size of its closest competitor. This size gives Bowlero the opportunity to invest in its centers to create a compelling experience.
However, bowlero is still only a small part of the overall bowling alley scene, and that’s a good thing. The company estimates that there are approximately 3,500 independently owned bowling alleys in North America. That means Bowlero-owned locations account for less than 10% of the bowling alleys on the continent, and the company has plenty of room to continue growing for the foreseeable future by acquiring independent centers and integrating them into its brands. That month, Bowlero acquired Mel’s Lone Star Lanes in the Austin Metroplex, Texas, and two bowling entertainment centers in Florida, Fiesta Bowl and Spanish Spring Lanes. Management’s goal is to acquire approximately 10 new centers per year, leaving room for future growth.
More than just bowling
Bowlero is also an attractive company because it leverages its core bowling offering to attract customers and then has additional opportunities to generate revenue. As a “Bowling Entertainment Center” Bowlero offers more than just bowling. For example, a group of friends or co-workers might come to a bowling league game and buy food and some drinks while they’re there. Or a family comes to bowl and stays to play arcade games. Bowlero says these amusements are “an excellent source of high-margin ancillary revenue” and that they represent the company’s “highest ROI investment stream.”
Bowlero appears to be an attractive long-term investment as it’s an industry leader with strong revenue growth in an industry that’s growing at a sustainable, if unspectacular, rate. The company can leverage its size and scale to continue finding attractive acquisitions to add to its portfolio. The ability to generate additional revenue from food, beverage and entertainment sales makes Bowlero even more compelling as a top growth stock going forward.
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American Express is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Michael Byrne has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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