Hollywood Bowl is a growth stock to consider

The first of these is the Hollywood Bowl Group (LSE: BOWL). Its stock price is up by almost 10% as I write this Friday afternoon. This follows its trading update for the six months ending 31 March 2022. During this time, it has reported record first-half revenues and cash generation from operations. After recording losses during the pandemic, it has also been profitable over the past year. It has now decided to pay dividends as well. 

The company, which as the name suggests, operates bowling centres, is also expanding. It opened two new centres in the UK in the last six months and is on track to open six more over the rest of its financial year (FY). To meet the challenge of rising energy prices, it has hedged itself until the end of FY2024. Moreover, it is also installing solar panels at its centres now, which are expected to provide 33% of its electricity requirements by the end of FY22. 

Risks to the FTSE stock

I wrote about the stock around a year ago, and was cautiously bullish on it then. I am even more so now, but the risks cannot be overlooked. The most glaring of these is the rise in coronavirus cases. As someone who has suffered from the virus recently, there is a part of me that is wondering if it might be a good idea to slow down on visiting too many public places. My point is, I do not think we should take the pandemic too lightly even now. Who knows what happens next!

Also, rising inflation is bad for discretionary spending. If prices rise too much and the economy slumps, the outlook for the group might suffer, even if it is able to keep its own costs in check.  

Jet2 shows improved performance

Jet2, the other stock on my radar now, has similar challenges. The flights and holiday packages’ provider is still making losses, after it was hurt by the pandemic as well. But there is good news for it too.

The stock is up 6% this Friday, after it reported improving load factors for the year ending 31 March 2022 following the removal of restrictions. And it expects trends for this summer to be positive too. It has also hedged up to 95% for its fuel requirements, which sounds quite impressive to me.

What I’d do

I think it could be a good stock to buy, but between Hollywood Bowl and Jet2, I am more inclined towards the former. It is already making profits, and is less likely to be hit by another wave of the pandemic, if that happens.  

“Exceptional trading”

Shares in ten-pin bowling and mini-golf operator Hollywood Bowl (LSE: BOWL) breached the 300p barrier back in January 2020. As markets opened this morning, they changed hands for only 239p. Nevertheless, today’s update suggests this gap might soon be closed.

From reopening its doors on 17 May to the end of September, BOWL enjoyed “exceptional trading“. Like-for-like revenue grew by 29% from that achieved in (pre-Covid) FY19. To me, that’s clear evidence management’s delivering, even though trading has likely been helped by restrictions on foreign travel. 

I suspect this form will continue. After all, families will be looking for relatively cheap forms of indoor entertainment as the cold weather arrives. In preparation, BOWL has been busy refurbishing various sites. Looking further ahead, it’s planning to open 14-18 new centres by 2024.

No guarantees

This isn’t to say Hollywood Bowl is a slam-dunk investment from here. We’re already being warned that Covid-19 infection levels, assisted by the arrival of the flu season, could spike again. Even if restrictions aren’t brought back in, visitor numbers and spending could drop. Investors might also speculate that the pent-up demand for affordable activities like bowling has now passed. 

I think the current valuation takes this into account. On less than 17 times forecast earnings prior to today’s statement, BOWL shares weren’t screamingly cheap. Then again, nor were they seriously expensive, especially considering the £30m of net cash on the balance sheet.  

Of course, the time to strike was last year. Had I snapped up the stock 12 months ago (and just prior to the announcement of effective vaccines), I’d be sitting on a gain of around 70% today.

No matter. Based on today’s positive statement, I’d be happy to add the shares to my portfolio.   

On the way back?

Another growth stock I think should continue to recover well is online package holiday operator On the Beach (LSE: OTB). After wobbling like everything else recently, its shares are back in form today. This follows news that the number of countries on the UK Covid travel red list will now be dropped from 54 to seven.  

Having started building a position in this company earlier in 2021, it’s a case of ‘so far, so good’ for my investment. Notwithstanding this, I don’t pretend there won’t be challenges ahead. Like Hollywood Bowl, the company could be impacted by the re-introduction of restrictions should infection levels rise.

Regardless, travel will always be a hugely competitive space and OTB’s apparent lack of economic moat is something I was conscious of when buying over the summer. 

These concerns aside, I continue to be bullish on this UK growth stock. With its asset-light business model and very limited debt, it remains one of the best ways of playing the post-pandemic recovery that I can find. 

With the shares still roughly 40% below the all-time high of 615p set back in 2018, I’m hoping to at least double my money. As always, patience is required. Full-year numbers are due in December.

Quality… at a price

No more table service. No more sitting outside (unless you want to!). The full re-opening of bars, pubs and nightclubs should play into the hands of FTSE 100 drinks giants Diageo (LSE: DGE). As such, I’d be happy to buy its shares on Monday.

For me however, Diageo’s appeal goes beyond the Covid recovery. I think it’s a great defensive stock to hold at the heart of a portfolio.

While trading will never be completely consistent year-to-year, its portfolio of premium brands and clout within the sector makes earnings (and dividend hikes) far more predictable than at other companies. High returns on capital and pricing power also make this a good hedge against inflation, in my opinion.

Sure, the valuation — a P/E of 27, as I type — is punchy. There’s a risk investors will prioritise value stocks in the months ahead, meaning some recent share price gains may be given up.

As a long-term investor, that wouldn’t bother me. As blue-chip companies go, I reckon Diageo is one of the best stocks to buy.

Summer holiday winner

Another stock that should benefit from the lifting of restrictions is Hollywood Bowl (LSE: BOWL). This might seem an odd choice as sites have been open for some time now. BOWL’s shares have also climbed 65% in value since this time last year.

However, I suspect the firm could benefit even more from the ongoing controversy and confusion surrounding overseas travel. Right now, booking a holiday abroad feels risky in both a health-related and financial sense.

Having probably exhausted streaming services over the multiple lockdowns, parents will also be looking for relatively cheap ways to entertain children over the school holidays. Step forward Hollywood Bowl.

Based on the numbers available to me, BOWL trades on a fairly attractive 17 times predicted FY22 earnings. Sure, nothing is nailed on and the company certainly carries more debt than it used to. Nevertheless, the above points and the ordinarily decent profit margins make the stock a ‘buy’ for me. 

Time to dine

A final stock I’d consider buying on Freedom Day — and one I already own — is small-cap Churchill China (LSE: CHH). Like Diageo, the tabletop manufacturer could/should see another rebound in trading as more people feel confident to return to restaurants and attend events. 

This month’s update was encouraging. Revenue in both May and June was back at 2019 levels. News that an interim dividend will be paid also suggests management is confident in the outlook. 

Having also increased by 65% in 12 months, Churchill’s share price now looks up to date with events. Moreover, the company’s small-cap status means the valuation could prove more volatile than your typical blue-chip if Covid takes hold again. As a result, I’m not sure I’d throw excessive amounts of cash at the firm now.

Notwithstanding this, I’d consider a small top-up, bearing in mind the company’s order book may receive another boost as vaccination programmes overseas pick up speed. 

Hollywood Bowl is raring to go

Hollywood Bowl Group (LSE: BOWL), as the name suggests, is a bowling alley operator in the UK. Needless to say, it has been impacted by the pandemic. Its half-year results this week showed revenue down to a fraction of what it was during the corresponding half of last year and it turned in losses as well. 

But when mulling whether to buy the stock or not, I focus on whether and how much its business picked up during the time it was operational. To that extent, I am encouraged by the fact that it reported profitable trading after the first lockdown. 

In the same update, it sounded upbeat about the reopening from May 17 onwards. In fact, it is planning further expansion of business, which is in stark contrast to other reopening stocks that have struggled through the lockdowns. It is set to open 18 new centres by 2024. 

In sum, it looks like Hollywood Bowl has managed the challenging time well. It is now ready to move forward at speed. While I am still concerned about the impact that last year’s closures have had on its long-term financials, I think there is comfort to be drawn from the fact that it was a financially healthy company pre-pandemic. 

What I am doing now

Further, in some of my previous articles I have said that an expected economic boom is likely to be very favourable for consumer stocks. Hollywood Bowl would be no exception. That is especially so, keeping in mind the pent-up consumer demand because of the lockdowns. 

Its share price has already run up quite a bit though. In November 2020 alone, as vaccines were developed, it jumped by 50%. In the past year, it has risen by more than 68%. While this is a sign of investor confidence in the stock, it also makes me wonder how much more the stock can rise. 

I like it, but just to be sure, I think it is a good idea to wait for a post-lockdown update before taking a position.

Vistry Group has a bullish outlook

In the meantime, I would consider somewhat safer stocks like the housebuilder Vistry Group (LSE: VTY). I had flagged it a few months ago as a stock I could buy this year.  After its latest trading update I am even more convinced. 

For 2021 so far, the group has reported strong demand and that was evident in its sales numbers. I especially like its strong forward sales position. It now expects its half-year performance to be significantly ahead of its earlier expectations. With bullish statements like these, it is little surprise that this UK share has been rising.

However, the property market could deflate as encouraging government policies are withdrawn later in the year. That said, there is also a likelihood that a pick-up in the economy could make up for this. I continue to like the Vistry Group stock. 

With that in mind, here are three shares I’d buy right now as markets plunge. 

Stock market crash buys 

I plan to focus on buying economic recovery plays, as I think these companies have the most potential as we advance.

With that in mind, I would add Virgin Money (LSE: VMUK) to my portfolio today. I think the challenger bank should see rapid growth over the next few years as the economic recovery gains traction. Its latest results show the group is already heading in the right direction. 

At the beginning of May, Virgin Money said fiscal first-half pre-tax profits came in at £245m from £120m a year ago. 

Based on City growth projections, the stock is currently trading at a forward price-to-earnings (P/E) ratio of 11.4. While I’m conscious these are just projections at this stage, I think that looks cheap. And that’s why I’d buy the bank amid the stock market crash. 

Still, this might not be suitable for all investors. The pandemic is not over yet, and another wave could cause yet more economic pain. That could have a devastating impact on Virgin’s recovery. 

Fighting fit 

Like Virgin, the Gym Group (LSE: GYM) has taken a big hit to profits over the past year. However, it’s now also looking forward to a period of rapid growth. 

Last year the group reported a pre-tax loss of £47.2m as revenues plunged from £153m in 2019 to £80m. Unsurprisingly, the firm also eliminated its dividend to investors. 

Nevertheless, putting a bad year behind it, management is optimistic about the future. The company planned to open three new gyms in April and one in May. It’s also beginning constructing another four gyms as it pushes to drive membership back to, and possibly above, pre-pandemic levels. 

However, there is one considerable risk hanging over the company, and that’s debt. It had to tap its lenders for extra cash to keep the lights on last year. While there is room for further borrowing, another lockdown could stretch the firm to its limits. 

Despite this risk, I’d buy the company in the stock market crash as an economic recovery play. 

Reopening play 

The final equity I’d buy amid the stock market crash is Hollywood Bowl (LSE: BOWL). 

The owner of bowling alleys around the UK reported a near-total decline in profitability for its financial year ending 30 September 2020. Pre-tax profit fell from £28m to £1.2m. 

But like Gym, the company is also looking to put this performance behind it. The business recently raised £30m from shareholders to “invest in new centre opening opportunities” and refresh its existing facilities. 

As the UK economy reopens, I think the company could see a significant uptick in business, and that’s why I’d buy the stock as a recovery play amid the stock market crash. 

The primary risk the company now faces is the potential for another lockdown, which would decimate sales once again and could throw its future into question. Overexpansion may also result in losses. 

Consumer confidence increased at the fastest rate in a decade in the first quarter of 2021. According to a survey of 3,000 adults, “going to a shop” was the top desired activity after lockdown restrictions end.

Shopping for the best UK shares

Fittingly, one of the best UK shares I’d buy right now is Next (LSE:NXT). This FTSE 100-listed clothing, beauty and homewares retailer runs a remarkable operation.

As restrictions end and more people venture out and about, demand for clothing should increase. Next is well-placed to benefit from this shift, in my opinion.

The crisis created several opportunities for Next, and it managed to pick up some strong brands as competitors struggled to stay afloat. It took over the spaces that had housed several beauty halls in former Debenhams stores to launch its new premium beauty chain. And it acquired a 25% stake in premium fashion brand Reiss. As the country gets back on its feet, Next could thrive in an environment with fewer competitors.

For instance, Next offers expectations of strong earnings growth, a double-digit return on capital, and an undemanding price-to-earnings ratio of 18x.

Bear in mind though, consumer sentiment could quickly reverse depending on the path of the virus. Any additional wave of infections or variants could prompt a return to restrictions. It’s a risk that should be carefully considered when investing in consumer-based stocks.

Aiming to strike

Households saved a record £238bn last year, according to figures from the Office for National Statistics. With consumer confidence returning, the UK is primed for a spending spree, in my opinion.

In addition to shopping, other areas that could see strong demand include hospitality and leisure.

Within these sectors, Hollywood Bowl (LSE: BOWL) could benefit from strong pent-up demand. Last year, trading was good when the business was allowed to open. Encouragingly, it experienced a better than expected performance during the summer, despite capacity and trading restrictions.  

The leisure operator launched new initiatives including the successful debut of a mini-golf concept. And it continues to expand sites and invest in refurbishing.

Some of the best UK shares can bounce back from a crisis. Some of the hardest hit sectors in the pandemic were leisure and hospitality. As confidence returns, they could recover with strength.

That said, businesses based indoors are at greater risk from further restrictions. I’m cautiously optimistic about UK leisure businesses, but with a close eye on virus variants and vaccine progress. Also, further dilution of shares can’t be ruled out, in my opinion. Much could depend on trading progress over the coming months.

Weighing everything up, I’d happily allocate a small portion of my portfolio to this reopening stock.

Getting ready for take-off

I’d need to swallow a large dollop of risk when buying easyJet (LSE: EZJ) shares. The ‘third wave’ of Covid-19 infections means that social and travel restrictions in Europe continue to emerge. The battle against the pandemic is far from over, and it’s too early to predict when the UK airline share’s planes will take to the skies in large numbers again.

But on the plus side, I think easyJet could still prove a lucrative reopening share for long-term investors like me. First and foremost, the business has issued bonds and signed leaseback agreements for its aircraft to help it stay afloat during the ongoing pandemic.

And by the look of things, market conditions are still extremely bright for the likes of easyJet. The low-cost travel market is expected to resume its rocketing growth of recent decades when the public health emergency is over. On top of this, the survivors of the current industry crisis will reap the fruits of reduced competition that will boost long-term revenues and profit margins.

A word of warning, though. Over the weekend French lawmakers voted for a ban on many domestic flights to help it meet carbon emissions targets. The aviation industry is a major contributor to greenhouse gases. So this action could be replicated in other countries as the fight against climate change intensifies, developments that would clearly damage easyJet and its ability to go about its business.

Another reopening share on my radar

I also believe that Hollywood Bowl (LSE: BOWL) is an attractive reopening share to buy today. As the name suggests, this UK stock operates ten-pin bowling centres. In fact it operates 64 centres today, giving it a market share north of 20%. It’s well placed to ride the soaring popularity of bowling in Britain, a market that expanded 23% in the five years to 2018, according to Mintel analysts.

Bear in mind that Hollywood has ambitious plans to grow its share of the market, too. It plans to resume its strategy of adding two bowling centres to its portfolio each year from 2022. And the business recently raised £30m via a share placing to help it exploit its healthy pipeline of new centres.

There are a couple of risks that I need to be aware of with this reopening share, however. Hollywood Bowl’s centres are due to open their doors to the public again on May 17. But of course, the emergence of a third wave of Covid-19 cases here could put paid to this date. In addition, this UK share doesn’t have a wide geographic footprint as it operates solely on these shores. This could put earnings in significant danger if local interest in ten-pin bowling begins to wane.

#1: Bowled over!

Its bowling alleys are shuttered as the public health emergency drags on. But I’d still buy Hollywood Bowl (LSE: BOWL) for my shares portfolio today. Sure, broker hopes that annual earnings will rocket 400%+ this fiscal year might well fall flat. I think the long-term outlook for this UK share remains white hot, however.

The popularity of ten-pin bowling has been soaring in recent years. And people’s desire to get out and start slinging those heavy balls around appears to be undimmed, despite Covid-19. The company enjoyed “strong customer demand” when its alleys temporarily reopened in August and September, it has previously said. Hollywood Bowl remains committed to expansion to exploit this trend too.

That said, the post-pandemic leisure sector remains and unknown quantity so such shares come with plenty of uncertainty. And new site openings have been put on the backburner to protect the balance sheet during the pandemic. But the UK share still hopes to open two new centres each year from the end of fiscal 2022. Speaking of the balance sheet, Hollywood Bowl is financially robust following a recent equity raise. As of September had £31.8m of liquidity, which I think should put it in good shape to ride out the Covid-19 crisis.

#2: Drink it in

I’d also be happy to buy Britvic despite its peril-packed profits outlook in 2021. It faces the prospect of another big hit this year as Covid-19 lockdowns continue. It faces more significant revenues gaps caused by bar and restaurant closures, along with weak demand from the ‘on the move’ segment.

I’d buy Britvic for the same reason that I recently bought shares in Coca-Cola HBC. Soft drinks labels like Robinsons, Lipton and Pepsi Max have eternal pulling power with consumers all over the globe. And sales of these products will likely rocket again when the coronavirus crisis passes. I think Britvic’s strong record of product innovation bodes well for a profits bounceback from next year. Recent launches include its Robinsons Superfruit Cordials drinks which play on the healthy living theme.

#3: Another UK share in my ISA

Things might not be plain sailing for the housebuilders in 2021. The possibility of surging unemployment might smack demand for their new-builds in the months ahead. Sales might experience a big drop off when the stamp duty holiday expires at the end of March too.

This doesn’t mean that market conditions for the likes of Barratt Developments won’t remain largely robust, however. Low interest rates and ‘Help to Buy’ government equity loans should keep new home sales ticking over nicely, despite these problems. Don’t forget, too, that Britain has a colossal housing shortage. The housebuilders can’t keep up with demand as a result. And this is likely to remain the case for years to come.

This particular UK share decided to start paying dividends again this month following recent strong reporting. As a Barratt shareholder myself this gives me extra confidence in the short-to-medium term.

But let’s stay optimistic. Thanks to their ability to rapidly increase revenue and profits, I think there are many small-cap growth stocks whose share prices could really shine. Here are three with strong potential. 

Drink up

Assuming bars, pubs, and sporting venues are allowed to fully open by spring, I think beverage firms such as AG Barr (LSE: BAG) could do well. Drinks companies do have a habit of bouncing back firmly after general market setbacks. This time should be no different.

That’s not to overlook just how hard the last year has been. Revenue and pre-tax profit have tumbled in 2020 due to the incredible headwinds faced by the hospitality sector. I’m also under no illusion that it will take some doing for Barr to recover back to the 950p mark it hit in 2019.

Then again, it’s got a lot going for it. In addition to its flagship IRN-BRU brand, Barr looks financially solid. The business had over £30m in net cash when it last reported to the market.

Although not currently paying out dividends, management does expect cash returns to resume in 2021 too. That’s the sort of bullish talk I like to hear.

Right space, right time

As widely expected, the share price of infection prevention specialist Tristel (LSE: TSTL) has enjoyed an excellent 2020. The £250m business is up almost 40% year-to-date. That’s despite sales being lower in early 2020 due to many operations being deferred by the pandemic.

Positively, CEO Paul Swinney revealed last week that Tristel had seen a “substantial recovery in demand” for its products since October. Pre-Brexit stockpiling by the NHS was a factor.

One reason the shares could continue rising in 2021 relates to the company winning approval from various regulatory bodies. In the US, Tristel has already spoken of “very encouraging progress” relating to its FDA test programme for its ‘Duo for Ultrasound’ disinfectant. Additional positive feedback has come from the Canadian regulator on its ‘Duo for Ophthalmology’ submission. 

Trading at 40 times forecast earnings already, at least some of this potential is already priced in. Even so, Tristel is a highly profitable, niche business with excellent finances. If another market crash presents me with an opportunity to do so, I’m backing the truck up. 

Ready to strike

For those of a risk-tolerant nature, ten-pin bowling firm Hollywood Bowl (LSE: BOWL) could also be worth backing.

While its offering is easily replicated, I think Bowl has a chance of recovering from the pandemic more speedily than, say, the UK’s battered airlines. A few games of bowling is far more affordable to families in tricky times than a holiday abroad. Even those with the means to travel when restrictions lift may adopt a ‘wait and see’ approach.

Only last week, the company reported it had seen “strong customer demand and better than expected performance” when it reopened after the first lockdown. That’s got to be encouraging.

The new tier 4 restrictions won’t help things in the near term. However, this may provide new investors an opportunity to strike on UK shares like this before the real recovery kicks in.

My advice for long-term investors would be to ‘fill your boots’. It doesn’t matter to me whether or not UK shares continue to rise in the days and weeks ahead. The stock market crash of early 2020 still leaves plenty of quality stocks looking too cheap to miss. I expect them to soar in value as the global economy rebounds over the next decade.

2 cheap UK shares on my radar

I’ve loaded up with some choice bargains in my Stocks and Shares ISA in recent months. And I’ve got my eye on plenty more cut-price corkers too. I reckon these cheap UK shares could help me make a fortune during the next bull market:

#1: Hollywood Bowl

Leisure stocks like Hollywood Bowl (LSE: BOWL) have taken a pasting in 2020 as Covid-19 lockdowns came in. But make no mistake, the long-term earnings outlook for this UK share remains quite robust. It’s why City analysts reckon annual profits will rocket 486% in the fiscal year to September 2021.

Ten-pin bowling has enjoyed a resurgence in the past few years. Indeed, the experts at Mintel reckon the market grew by more than a quarter between 2014 and 2019 to be worth a whopping £320m. It should move back into strong growth in 2021 as the fight against Covid-19 kicks in.

And Hollywood Bowl — which operates around a quarter of all the UK’s bowling lanes and is aggressively expanding — is in great shape to ride this theme. The leisure giant trades on a forward price-to-earnings growth (PEG) ratio of 0.1 today. This makes it a terrific pick for value investors.

#2: Taylor Wimpey

Housebuilder Taylor Wimpey (LSE: TW) is another UK share which City brokers expect to enjoy a stunning profits recovery next year. Current forecasts suggest the bottom line will rebound 138% in 2021. And this also leaves the company trading on a forward-looking PEG ratio of 0.1.

Pessimists claimed that Brexit uncertainty would sink homes demand in the UK. It didn’t happen. The biggest economic slump since the 1700s following the Covid-19 outbreak hasn’t either. In fact, house prices continue to soar at an electrifying rate. Put simply, there just aren’t enough homes to go around due to poor build rates in recent decades. And this is driving house prices through the roof (so to speak).

The likes of Taylor Wimpey can expect sales of its new builds to keep ripping higher too. Huge government support for first-time buyers isn’t going away any time soon. And rock-bottom Bank of England interest rates mean mortgage products should remain extremely affordable as well. I own this particular share in my ISA already. And I’m thinking of buying more following its share price drop in 2020.