At first glance, bowling entertainment center operator Bowlero (NYSE:BOWL) appears to be an unusually risky idea. In particular, consumers have struggled economically due to soaring inflation and elevated borrowing costs. With credit card debt and delinquencies rising, going out bowling seems imprudent. However, a consumer behavioral shift toward experiential expenditures may benefit the business. This, combined with a high short interest, makes it enticing. As a result, I am bullish on BOWL stock.
Consumers Still Spend, Giving Hope to BOWL Stock
In October last year, TipRanks ran a story noting that a price hike announced by Disney (NYSE:DIS) may end up hurting families. It was a firm kick to the stomach, but the news also broadcast an encouraging reality: people are still spending money. They’re just selective of what they’re spending it on.
It’s here that Bowlero may distinguish itself from the consumer discretionary competition, boding well for BOWL stock. Fundamentally, the COVID-19 crisis sparked a behavioral phenomenon known as “revenge travel.” Having been forcibly cooped up at home due to social restrictions, pent-up demand spiked for vacations and other social experiences.
Now, revenge travel sentiment – at least the acuteness of it – has noticeably faded. However, many market researchers have pointed out that travel prioritization has taken over. Essentially, this dynamic means that people are focused on social experiences that can’t be easily duplicated.
A great example of this framework is the relative dearth in box office attendance. Nowadays, people prefer streaming their favorite television shows and movies. And because Hollywood studios tend to broadcast their blockbuster films on their streaming networks fairly quickly, consumers have little incentive to go watch movies at the movies. That’s especially the case with the aforementioned blistering inflation.
Perhaps most importantly, the box office experience can be somewhat duplicated at home. As I pointed out in a previous article, the one product segment that inflation hasn’t touched is flatscreen TVs. Go to major retail outlets, and it’s easy to find 70-inch TVs that are priced at around $400 to $500.
No, it’s not exactly the box office experience, but in some cases, it’s better. You’re at home, you can invite your buddies, and you don’t have to pay exorbitant fees. Going to the cineplex has, for many, become superfluous. However, the same can’t be said about bowling, and that’s where BOWL stock has an edge.
Short-Squeeze Threat Is Credible for Bowlero
At a Bowlero center, the experience absolutely cannot be duplicated at home (unless you’re rich enough to own a bowling lane at your abode). And if you think about it, each time you visit a Bowlero center, the ensuing experience is unique. No two games will ever be exactly the same.
For the money, one can make the case that you’re getting more bang for the buck. When you watch a movie, you’re a passive recipient of content – content that can be duplicated in terms of format anywhere. However, bowling requires active participation. Further, the experiences – such as the conversations you have with friends between sessions – are also unique.
Stated differently, there’s a dynamism involved in bowling that fills the pent-up demand for social experiences lost during the pandemic. At this juncture, BOWL stock is one of the most relevant market ideas available.
Therefore, BOWL stock represents a credible threat for a short squeeze. Anyone betting against the security should take notice.
Presently, BOWL stock features a short interest of 62.33% of its float. That’s just ridiculously massive. Generally, short interest above 20% is considered an extremely high level. Moreover, the short interest ratio stands at 21.26 days to cover. Again, we’re talking about an absurdly elevated metric. The short ratio refers to the time necessary – based on average trading volume – for bears to unwind their positions.
To recap, a short position is initiated by borrowing the target security from a broker, then immediately selling it. The idea here is to wait for shares to drop in value. If they do, the short trader buys back the security at the discounted price, returns the borrowed amount to the broker and pockets the rest as profit.
However, if shares rise in value, then the speculator would be pocketing losses. In such a situation, it’s better to punch out early. However, exiting a short position involves buying to close, which is obviously a problem if you’re a bear.
Forward Projections Are Likely Credible
According to analysts’ projections, by 2028, Bowlero’s sales could hit $1.54 billion. In 2023, the company generated revenue of $1.06 billion. Assuming that this trajectory materializes as so, we’re talking about a compound annual growth rate of about 7.76%.
According to Mordor Intelligence, the bowling center market size reached a valuation of $18.81 billion. Experts project that the sector could hit $22.85 billion by 2028, implying a CAGR of 3.97%.
Now, I say that the projections for BOWL stock are credible because the underlying business fits with COVID-sparked behavioral shifts. The experts agree. Mordor stated, “Post-pandemic, developed countries such as the United States have observed a continuous rise in the market size of the bowling center industry, with an increasing number of people preferring to spend their leisure time in bowling activities.”
Is Bowlero Stock a Buy, According to Analysts?
Turning to Wall Street, BOWL stock has a Strong Buy consensus rating based on nine Buys, one Hold, and zero Sell ratings. The average BOWL stock price target is $17.65, implying 36.4% upside potential.
The Takeaway: Consumer Behavioral Pivot May Save BOWL Stock
With the COVID-19 crisis forcing many people to quarantine for an extended period, this dynamic created pent-up demand for social experiences. This is evident when considering that revenge travel eventually evolved into travel prioritization. One of the underlying themes of this trend is that people prefer spending on experiences that can’t be easily duplicated. That fits Bowlero to a “T,” making BOWL stock a relevant stock. As such, it’s best to avoid shorting it.
