Could quality and value be the key for shares in Hollywood Bowl?

Could quality and value be the key for shares in Hollywood Bowl?

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Good shares at cheap prices are what the very best investors look for. At this time of economic turmoil and market volatility, could Hollywood Bowl (LON:BOWL) be one of them?

When it comes to the proven drivers of stock market profits, "good" and "cheap" is the best blend of quality and value that you can get. Research shows that poor quality, expensive shares tend to underperform - but high quality, cheap shares can deliver stunning profits.

The Hollywood Bowl share price has moved by -51.4% over the past three months and it’s currently trading at 137.5. The good news is that it scores well against some important financial and technical measures. It's a large-cap share with strong exposure to high quality and a relatively cheap valuation.

Here's an idea of where you can see that:

Good quality

Good quality stocks are loved by the market because they're more likely to be solid, dependable businesses. Profitability is important, but so is the firm's financial strength. A track record of improving finances is essential.

One of the stand out quality metrics for Hollywood Bowl is that it passes 7 of the 9 financial tests in the Piotroski F-Score. The F-Score is a world-class accounting-based checklist for finding stocks with an improving financial health trend. A good F-Score suggests that the company has strong signs of quality.

Fair price

While quality is important, no-one wants to overpay for a stock, so an appealing valuation is vital too. With a weaker economy, earnings forecasts are unclear right across the market. But there are some valuation measures that can help, and one of them is the Earnings Yield.

Earnings Yield compares a company's profit with its market valuation (worked out by dividing its operating profit by its enterprise value). It gives you a total value of the stock (including its cash and debt), which makes it easier to compare different stocks. As a percentage, the higher the Earnings Yield, the better value the share.

A rule of thumb for a reasonable Earnings Yield might be 5%, and the Earnings Yield for Hollywood Bowl is currently 13.0%.

In summary, good quality and relatively cheap valuations are pointers to those stocks that are some of the most appealing to contrarian value investors. It's among these shares that genuine mis-pricing can be found. Once the market recognises that these quality firms are on sale, those prices often rebound.


What does this mean for potential investors?

Finding good quality stocks at cheap prices is a strategy used by some of the world's most successful investors. But be warned: these factors don't guarantee future returns and we've identified some areas of concern with Hollywood Bowl that you can find out about here.


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Hollywood Bowl's StockRank™

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Hollywood Bowl's StockRank™

With a StockRank of 79, Hollywood Bowl is more attractive than 79% of the 7,586 stocks we cover in Europe, according to our proprietary ranking system.

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