Here’s a Leisure Stock That Will Bowl You Over
Bowlero Corp. (BOWL) is a leisure “SMID Cap” stock. It operates more than 300 bowling centers across North America. It’s a stock that someone as sports- and leisure-obsessed as myself should never have lost track of.
Unfortunately, good ones often fall through the cracks when you cover as many stocks as I have over the years.
I’m not prepared to say BOWL stock is an outright buy. However, the performance it’s put on in 2022 is notable for several reasons. Ultimately, you can make up your mind about its long-term attractiveness.
Born of a SPAC Marriage
That’s right, folks. There’s a SPAC from 2021 that’s making money for investors in 2022. On Dec. 16, 2021, Bowlero merged with ISOS Acquisition Corp. and started trading on the NYSE.
It’s up 39% since going public and almost 58% in 2022. According to Barchart.com data, Bowlero is the 15th best-performing U.S.-listed stock in 2022, with a market cap between $2 billion and $3 billion. If you take out energy-related stocks, it’s in the top five.
ISOS went public in March 2021, selling 25.5 million units at $10.
The management team behind the SPAC were high-ranking World Wrestling Entertainment (WWE) executives. ISOS Co-CEO George Barrios worked at WWE for almost 12 years, leaving in January 2020 as part of a management shakeout. ISOS’ other Co-CEO, Michelle Wilson, was at WWE for nearly 11 years. Both were Co-Presidents of the WWE until their sudden departure in 2020.
The other directors of the SPAC sponsor mostly had media and technology backgrounds. Of the eight involved as officers and directors, seven were in their 50s or 40s, in the prime of their working careers.
So, from a competence standpoint, the officers and directors set a high bar. While ISOS was free to assess possible merger partners from any sector or industry, it focused on the global media and entertainment sectors. Bowlero certainly fits the bill.
Investment bankers, who’ve lost significant fees from the SPAC meltdown, are undoubtedly hoping Bowlero will be a massive success.
Bowlero’s Long History
I only came upon Bowlero recently after seeing an article in The Globe and Mail about the company.
A long-time follower of Brunswick Corp. (BC), I remembered that the boatbuilder had sold its bowling centers to AMF Bowlmor in the summer of 2014 for $270 million. A year later, Brunswick sold its bowling products business to an Atlanta-based investment firm, and it was entirely out of the bowling industry.
How did all of this turn into Bowlero?
Tom Shannon acquired Bowlmor Lanes in Manhattan in 1997. He turned it into a nice place to go for an evening’s entertainment. From there, he opened more Bowlmor Lanes in other parts of the country, acquired AMF Bowling Centers in 2013 in partnership with Cerebrus Capital Management and Credit Suisse, bought Brunswick’s bowling centers a year later, and the Professional Bowlers Association in 2019.
In 2017, Cerberus got out, and Atairos Group, a New York-based growth investor, bought in. Shannon stayed on to run the business, retaining his significant equity position.
“We’ve had an incredibly successful partnership with Cerberus, growing Bowlmor from six centers in 2013 to over 300 today. We acquired and revitalized the AMF Bowling and Brunswick Bowling chains through extensive operational improvements and by introducing Bowlmor’s innovative sporting and entertainment experience to a national audience,” Shannon stated in 2017.
That brings us to the present day.
Not only did ISOS bring $255 million in cash to the merger, but it also raised another $250 million from a PIPE (private investment in public equity), while Bowlero’s existing shareholders rolled over $1.2 billion in equity into the merged entity, valuing the combination at $2.6 billion, including $863 million in debt.
What Are Investors Getting?
First and foremost, Bowlero is the world's largest owner/operator of bowling centers. Bowling is still a thing despite all the online gaming and esports happening in the world.
In mid-September, Bowlero reported its Q4 2022 and full-year results. They were off-the-charts good, with revenues up 31.4% from pre-pandemic levels in 2022, to $912 million, with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $316 million, 81.9% higher than in 2019.
In the fourth quarter, Bowlero opened four new centers, bringing the total for the year to 29. It had 317 open as of July 3. In Q1 2023, it’s already added one new center and signed definitive agreements to buy eight more.
Perhaps most impressive is the 960 basis point increase in its adjusted EBITDA to 34.7% in 2022, from 25.1% in 2019. By comparison, Dave & Buster’s (PLAY) adjusted EBITDA margin in its most recent quarter was 25.5%, significantly less than Bowlero.
I like Dave & Buster’s growth prospects and business, so the fact Bowlero’s lapping it says something.
From a valuation perspective, BOWL isn’t cheap at 2.38x sales compared to 1.13x for Dave & Buster’s. Only three analysts cover Bowlero. However, the ones that give it a strong buy rating also have a mean target price of $15.67, which is 13% higher than its current share price.
It’s important to keep in mind that Bowlero still has plenty of bowling centers it can buy -- Shannon estimates there are 3,500 independent bowling centers operating today -- so it will remain busy consolidating the industry.
If you can hold for 2-3 years, the current share price shouldn’t be an issue. That said, you might want to leave some cash available to buy more if it drops closer to $10. On a roll, I’m not sure if it will be without a recession.
I like what Bowlero’s doing.
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Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.
