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2 high-growth stocks I’d buy today

Tenpin bowling is a bit of an old school leisure activity in a world where entertainment options are dominated by smartphones, games consoles and screens of all sorts. But Hollywood Bowl (LSE: BOWL), the UK’s largest operator of tenpin bowling lanes, has found that investing in upgrading its centres and appealing to young families is a very profitable exercise.

In the half year to March, the group’s revenue rose 7.9% year-on-year (y/y) to £59.3m. It opened one new centre to take its total to 55 and also increased like-for-like (LFL) sales by 1.2%. And looking ahead there’s still considerable room for management to increase sales by pursuing growth drivers in the near future.

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The company has a strong pipeline of future sites with three new centres due to open in H2 and a further three sites already lined up and due to begin operating in fiscal year 2018/2019. On top of this, LFL sales should also continue to rise as the company’s refurbishment programme overhauls run-down Bowlplex locations it purchased in 2015 and introduces popular concepts such as Hollywood Diner restaurants and VIP lanes across the estate.

The company is also highly profitable and kicks off plenty of cash. In H1, EBITDA margins rose to 30.8% to £18.2m and net cash flow increased to £7.3m. With net debt at period-end falling to £13.5m and new centres only costing around £2.3m on average, shareholders see increasing amounts of cash thrown their way going forward.

Analysts are already pencilling in a 3.4% dividend yield for the year ahead. This figure should only rise as the company’s margins rise, one-off costs related to its IPO roll off, and refurbishment capex tails off as it nears completion of the estate renovation. Hollywood Bowl’s fortunes should rise and fall generally in line with the broader macroeconomic environment but with good rollout prospects, high income potential and a valuation of just 13 times trailing earnings, it’s still one small cap I’d own for the long term.

Back on the right track

Another stock I’d buy today is software escrow and testing assurance provider NCC Group (LSE: NCC). The company’s share price is still recovering from a couple nasty profit warnings since last winter and I reckon its shares could be a long-term bargain at their current price.  

The main reason is that despite self-inflicted pain over the past few quarters the company is still well-placed to benefit from the broader increase in demand for cyber security services while in the short term raking in cash from its software escrow business.

The new management team plans to profitably benefit from these tailwinds by selling off its software and web testing services and doubling-down on targeting the relatively fragmented and under-served cyber security services market. And while this turnaround is being executed the company is still cash flow positive with low levels of debt, meaning investors’ downside risk is considerably lower than with the likes of Carillion, for example.

With sector tailwinds at its back, a solid turnaround plan to improve sales and margins, and a healthy balance sheet, NCC Group appears to be a great play on cyber security to me.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of NCC. The Motley Fool UK has recommended Hollywood Bowl. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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