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Is this FTSE stock an opportunity or a red herring during the market crash?

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The name that resonates with ten pin bowling for most people is Hollywood Bowl (LSE:BOWL). 

The coronavirus has been impacting the financial markets and day-to-day life as we know it. Government advice has now reached the point of social distancing – avoiding gatherings and staying away from pubs, clubs, entertainment venues, and such.

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There has been a raft of closures across the country of such venues, and the popular bowling venue is expected to be one of them any day now, especially in the wake of a host of cinemas announcing closures. 

Recent events and impact

Just a few days ago, Hollywood Bowl announced positive trading news, but also noted the expectation of  impending closure for the foreseeable future, as well as measures being taken to mitigate the impact, such as cost-cutting.

It announced that for the five months to 29 February, like-for-like sales were up 9% and revenue rose 13%. 

Performance and prospects

Despite the current doom and gloom, it has not always been the case. In the year to 30 September, total revenues increased 8% to £129.9m, while pre-tax profit jumped 15% to £27.6m and net debt shrank 16% to £2.1m. Management boosted the dividend 13% to 11.93p due to the positive performance. 

I always carefully consider share price dividend and net debt when carrying out my research and analysis. These were two key takeaways from the full-year results. The good news at the time resulted in a 7% spike in share price at the time. 

CEO Steve Burns happily announced the news at the time and indicated further investment into growth, We have made a solid start to the new financial year and we expect to make further progress in our ongoing refurbishment programme, investment in technology and continued roll-out of customer innovations.”

The current price-to-earnings ratio stands at just under 5, which is nothing to be concerned about in my opinion. What I would look at is profit level. The last two years have seen impressive profit margins delivered, with increases on the previous year. Additionally revenue has seen a steady year-on-year growth which indicates consumers’ appetite for this particular type of entertainment. 

Share price performance is key. In the previous month, it had a drop of approximately 60%, but at time of writing, it has staged a mini fightback. The share pricing stands at close to 100p compared to the low of 71p only a day or so ago. 

Over the longer term, the share price has been in good shape. From March 2017 until just before the coronavirus, there was an encouraging, healthy increase of approximately 80%.

Bowled over

During these turbulent times I believe certain stocks are high risk. Unfortunately, this is one of them. Despite positive signs and encouraging results in the past, the current pandemic is leading me to believe that it is not a stock I would be interested in at the moment. However, that said, I would be keen to monitor Hollywood Bowl’s viability once other factors subside and trading resumes.

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Jabran Khan has no position in any of the shares mentioned. 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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