At a time when the S&P 500 and other major market indexes are all down sharply, there's an under-the-radar growth stock that's quietly surging -- Bowlero Corp. (BOWL 1.47%). While a bowling alley operator might not sound as exciting as the next hot SaaS stock or electric vehicle play, there's nothing ho-hum about Bowlero's gain of over 50% so far this year.
Bowlero also recently caught the attention of JPMorgan Chase (NYSE: JPM), which initiated coverage of the stock with a Buy rating. JPMorgan's $17 price target implies upside of nearly 40% from today's level. Let's take a look at this surging growth stock, and why the shares could keep rolling.
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Rolling strikes
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 entertainment centers" across 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 the home of the Professional Bowling Association (better known as the PBA Tour), the top professional bowling league in the world, which it acquired in 2019.
By rolling up some of the top bowling alley chains and the world's biggest professional bowling league, Bowlero is building a publicly traded bowling powerhouse. Bowling looks like a good market to be a leader in, as consumers increasingly look to go out, enjoy themselves, and spend more on experiences and entertainment as several years of COVID-related restrictions ease.
American Express (NYSE: AXP) is a great barometer on the state of the American consumer, and it recently reported record spending by members, "led by a vigorous rebound in travel and entertainment." American Express' CEO also said that consumers may be spending less on goods but that they are making up for it by spending more on experiences.
Beyond entertainment spending in general, revenue for the bowling industry specifically has been in a solid uptrend for the last decade-plus. While it may not have the same compound annual growth rate (CAGR) that we see in some high-tech industries, industrywide revenue grew at a slow but steady CAGR of 4.1% between 2010 and 2019.
This shift toward experiential spending looks like it is bearing out in Bowlero's numbers. During the most recent quarter, revenue increased 68.3% year-over-year. While this number may look artificially high because the company was lapping a quarter where 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. Same-store sales revenue improved by 53% compared to pre-pandemic. Same-store sales measures the growth of revenue at locations that have been open for at least a year, so it filters out the effect of new stores bringing in new revenue and is a good way to look at the overall health of consumer discretionary businesses.
Rolling 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 next-largest competitor. This scale gives Bowlero the ability to invest in its centers to create a compelling experience.
That said, Bowlero is still just a small part of the overall bowling alley scene, and that is also a good thing. The company estimates that there are about 3,500 independently owned bowling alleys in North America. This means that Bowlero-owned locations make up less than 10% of the bowling alleys on the continent, and that it has plenty of room to keep growing for the foreseeable future by acquiring independent centers and rolling them up into its brands. This month, Bowlero acquired Mel's Lone Star Lanes in Texas' Austin metroplex and two bowling entertainment centers in Florida, Fiesta Bowl and Spanish Spring Lanes. Management's goal is to acquire about 10 new centers a year, so there is ample runway for growth ahead.
More than just bowling
Bowlero is also an attractive business because it uses its core bowling offering to draw customers in and then has additional ways to generate revenue. As a "bowling entertainment center" Bowlero offers more than just bowling. For example, a group of friends or coworkers might come in for a bowling league match and buy food and a few drinks while they are there. Or a family might come in to bowl and stay to play arcade games. Bowlero says that these amusements are "an excellent source of high-margin ancillary revenue" and that they represent the company's "highest ROI investment stream."
Bowlero looks like an attractive long-term investment because it is an industry leader with strong revenue growth in an industry that is growing at a sustainable if unspectacular rate. The company can use its size and scale to continue to find attractive acquisitions and add them to its portfolio. The opportunity to generate further revenue through food and beverage sales as well as through amusements makes Bowlero even more appealing as a top growth stock going forward.
