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Is Goals Soccer Centres plc on the cusp of a major turnaround?

Five-a-side football venue group Goals Soccer Centres (LSE: GOAL) slipped lower this morning, after issuing a mixed trading statement.

Goals’ stock has fallen by more than 50% over the last two years, and the group reported a full-year loss of £6m in 2015. Management claims it’s starting to see evidence of a decisive turnaround, but do these claims stack up based on today’s figures?

The bad news

Goals’ revenue rose by 1.3% to £33.4m last year, with like-for-like growth of £0.6m. The company described this as “broadly in line with market expectations”. But the word broadly usually means slightly below, and that seems to be the case here.

The latest consensus forecast I’ve found for Goals suggests that revenue was expected to hit £34m this year. This might not seem a big difference, but it implies sales growth of 3% — more than double what the group actually achieved.

Here’s the good news

The first piece of good news is that Goals is expected to have returned to profit last year, with adjusted earnings of 9.8p per share. There was no mention of profit in today’s update, so it’s probably fair to assume that earnings should be close to current forecasts.

The second piece of good news could be more significant. Goals upgraded 136 of its pitches last year, with improved surfaces and various other changes. The group said that while activity levels only rose by 1% across the whole year, they rose by 3% during the second half. That could mean that customers like the upgraded sites and are playing more.

Nick Basing, Goals’ chairman, believes the firm has “turned the corner with this result”. I think there’s more work to do, but with the shares trading on a forecast P/E of 10, it could be worth a closer look.

Does this recovery play make sense?

Troubled sportswear retailer Sports Direct International (LSE: SPD) owns a 3.84% stake in Goals Soccer Centres. Unfortunately Sports Direct’s turnaround may not be as quick or straightforward as that of Goals.

Its shares have lost 60% of their value over the last two years. Profits are expected to fall by 64% during the current financial year, from £277m to just £100m. A string of PR disasters probably hasn’t helped Sports Direct’s relationships with big City investors, either.

As a value investor, none of this would bother me, if Sports Direct looked really cheap. Recent news that the group plans to sell the Dunlop brand for $137.5m suggests that there may be some hidden value in the retailer’s portfolio of brands. But to be honest, I don’t think this is enough to swing the shares to a buy for me.

I’m concerned by the group’s plan to spend £300m on property over the next two to four years. This seems likely to ramp up net debt at a time when profits are weak. It’s also not clear to me why these purchases are needed to develop the retail business.

The group pays no dividend, so shareholders are reliant on share price gains for their returns. With no clear understanding of the firm’s strategy and a forecast P/E ratio of 17, I think the risks are too high. I won’t be investing.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Sports Direct International. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.