While we look to be through the worst as far as Covid-19’s concerned, I think there are many UK growth stocks that are still to fully recover their mojo. Today, I’m focusing on two from lower down the market spectrum, one of which I’ve already snapped up.
“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.
