Bowl America (BWL.A) and its subsidiaries operate 10 bowling centers in the greater metropolitan area of Washington, D.C., one bowling center in the greater metropolitan area of Baltimore, Md., one bowling center in Orlando, Fla., three bowling centers in the greater metropolitan area of Jacksonville, Fla., and four bowling centers in the greater metropolitan area of Richmond, Va. These 19 bowling centers contain a total of 756 lanes. Its principal source of revenue consists of fees charged for the use of bowling lanes and other facilities and from the sale of food and beverages for consumption on the premises, with merchandise sales (including food and beverages) and fees for bowling and related services accounting for 30% and 70% of its operating revenues respectively.
Bowl America currently trades at 1.94x P/B, a slight premium of 4% to its five year average P/B of 1.86. In terms of earnings based valuations, it is currently valued at a trailing twelve months P/E of 43.68 and a trailing twelve months EV/EBITDA of 15.9. Bowl America achieved a 4.4% ROE for the past twelve months and a five year average ROE of 6.2%.
Financial and Business Risks
Bowl America is debt free with net cash of $5.7 million representing 9% of its current market capitalization of $63.7 million.
Bowl America's business is highly discretionary in nature, subject to big swings in discretionary spending and consumer tastes. Promotional and open play bowling accounts for more than half of its business. The bowling business is a seasonal one, and most of the business takes place from October through May.
Over the recent years, Bowl America, while still remaining profitable and free cash flow positive, has seen its margins deteroriate, with operating margins dropping by two-thirds and ROEs falling by 50% from the early 2000s.
Weather is a double-edged sword. While hot weather or rainy days prompt people to seek indoor activities like bowling, severe bad weather like heavy snow storms can prevent customers from reaching the centers.
Business Quality and Capital Allocation
Bowl America owns properties in some of the most valued locations in the United States. It owns centers within five of the 10 most affluent counties in the nation in a list by the United States Census Bureau on Sept. 20, 2012.
It is also well-positioned to ride out the poor economy, with a significant net cash position and positive free cash flow generation to meet operating expenses and cash outflows. It also minimizes rental obligations by owning the land and buildings at 17 of its 19 bowling centers and renting the remaining two.
Bowl America is profitable for every single year in the past decade and free cash flow positive for nine out of the past 10 years. It has paid dividends every single year since 1995 and currently sports a dividend yield of 5.3%. Dividends are paid quarterly.
Deteroriating operating performance and the discretionary nature of Bowl America's business are offset by a debt-free cash rich financial position, with minimal rental obligations and a strong dividend yield. However, current valuations are unattractive.
The author does not have a position in any of the stocks mentioned.