The company sees better acquisition opportunities ahead.
Shares of bowling center operator Bowlero (BOWL 6.58%) jumped on Friday after the company reported strong results for its fiscal fourth quarter of 2024. The S&P 500 was struggling as of 10:45 a.m. ET today, dropping 1.3%. But for its part, Bowlero stock was up 10% as of this writing, and had been up nearly 18% earlier in the day.
Investors weren’t expecting these numbers
Bowlero’s fourth quarter ended in June. And during that three-month period, revenue jumped 19% year over year. That was better than expected, boosted by a 7% increase in same-store sales.
Besides reporting better-than-expected growth in its fiscal 2024, management also offered better-than-expected guidance for fiscal 2025, which started in July. The company expects up to 10% top-line growth. And it forecast a margin of 32% to 34% for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), which is slightly better than its 31% margin in fiscal 2024.
Investors were happy with strong growth and expanding profit margins. And it’s why the stock is up today.
What now for Bowlero stock
Bowlero has over 350 bowling centers, having grown to this size using a heavy mix of acquisitions. For perspective, it built three new bowling centers in fiscal 2024 but acquired 22 others. Management says that it’s seeing an increase in good acquisition opportunities, so stay tuned for more buyouts.
I would say this complicates the investment thesis for Bowlero stock. Buying distressed assets and profiting after fixing them up isn’t an easy thing to consistently do well. Management deserves praise for its success so far, but considering the leverage involved, it can be a risky strategy when things go wrong.
Perhaps to sweeten the appeal, Bowlero is rewarding shareholders as well as making acquisitions. Management has been repurchasing shares and is authorized to spend $164 million more on buybacks. And it still pays a dividend that’s currently yielding about 2%.
This might entice some investors to look past the risks in the growth-by-acquisition strategy that Bowlero has successfully used so far.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.