Fans of bowling, bocce, and "eatertainment" have a new name on the investing radar. Pinstripes (PNST -2.40%) went public earlier this month, hoping to woo growth investors willing to take a chance on a profitless chain that is very early in its growth cycle.
There are a few things to like about the company that offers up to 20 bowling lanes, a high-end bistro menu, outdoor patios with fire pits, private event space, and even a few bocce ball courts. It's a cross between Bowlero and Topgolf Callaway, but there are also some things not to like about this Wall Street debutante. Let's take a look at both sides of this new listing.
It's a strike
Pinstripes may be small -- it just opened its 15th location location last month -- but it makes up for the low store count with high volume. The concept delivered an average unit volume of $8.6 million in its fiscal 2023 year that ended in April of last year. It adds up. Revenue clocked in at $111.3 million in fiscal 2023, up sharply from the $77.1 million it rolled a year earlier.
With its current enterprise value of $356 million, Pinstripes trades at 3.2 times its trailing revenue. The top-line multiple is actually cheaper than Bowlero at 4.2, but higher than Topgolf Callaway at 1.5. To be fair, more than half of Topgolf Callaway's revenue comes from its flagship golfing equipment and lifestyle gear. A good match here could be eatertainment leader Dave & Buster's Entertainment. It's packing an enterprise value that is 2.3 times its trailing top-line results.
Pinstripes is expected to grow a lot faster than the three larger havens of active revelry in the near term. Armed with its newfound access to capital in the public markets, the chain is hoping to open at least six U.S. locations this year. Increasing its store count by 40% will make sure that its revenue easily outpaces the 6% to 9% top-line growth that analysts are modeling for Bowlero, Topgolf, and Dave & Buster's this year.
Watch out for the gutter
As exciting as the growth prospects might seem for the unique Pinstripes concept that derives roughly 80% of its revenue from food and beverages, there are a few potential red flags to consider. We can start with the deficits. Pinstripes' operating loss widened to $13.7 million in fiscal 2023. The slower-moving Bowlero, Topgolf, and Dave & Buster's are all profitable, trading at 12 to 38 times forward earnings.
It's also important to note that Pinstripes didn't go public via the traditional initial public offering (IPO) route. Like many small companies over the past few years, Pinstripes went public as a special purpose acquisition company (SPAC). Aggressive growth investors were initially excited at the early-stage companies available as SPAC offerings, but more often than not these ground-floor opportunities wound up descending to the market's basement.
Let's also talk about warrants. Pinstripes hit the market with more than just conventional shares. There are also nearly 24 million warrants that are exercisable at $11.50 apiece. The good news is that the shares would have to nearly triple from current levels to get that high. It would also mean raising up to $276 million in new stock financing. The bad news is that it will limit the upside with the dilutive warrants at that point.