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Who doesn’t love a bargain? Well, despite the UK market being in fairly fine fettle, I can still see a few potential opportunities out there. Let’s look at two value stocks from the FTSE 250.
In the gutters
Shares in Hollywood Bowl (LSE: BOWL) are down around 15% year to date, massively underperforming the mid-cap index. Quite a lot of this fall came at the end of May and following the release of some pretty underwhelming half-year numbers. Pre-tax profit for the six months to the end of March fell by 9.4% to £28m, for example.
But this wasn’t the only concern. At the time, CEO Stephen Burns commented that warm weather seen since the end of that period had impacted trading, pushing management to focus on reducing costs. Naturally, this caused investors to question just how much damage this would do to like-for-like sales in Q3.
Of course, we’ve had even more hot weather in the last couple of months. This means there could be extra share price slippage before the next trading statement arrives in October.
Already cheap?
However, there’s also an argument for saying that a lot of this is already priced in.
Hollywood Bowl stock now changes hands for 11 times forecast earnings. That’s low among UK companies in the Consumer Cyclicals space. The dividend yield is a striking 5.1% too.
On a fundamental level, the operator of tenpin bowling centres here and in Canada has a record of making consistently good margins and great returns on the money it puts to work. Speaking of the latter, a refurbishment programme has been underway for a while now, in addition to new centres opening up.
Any investors considering this stock will need to go in with their eyes wide open. But good weather in the UK is always temporary. So, I reckon this might be one for value hunters to ponder building a stake in.
Tricky times
Another value stock that potentially warrants more attention is Domino’s Pizza (LSE: DOM).
Granted, things aren’t exactly great right now. The share price is down over 20% year to date as the firm struggles to register meaningful growth in a tricky economic environment. Like-for-like sales in Q1 were up just 0.5%.
The fact that inflation is on the rise again isn’t ideal. So it’s no wonder that there continues to be quite a bit of activity from short sellers around this stock. Short sellers bet against a company and stand to make money if the share price falls.
Ready to rebound?
But again, we need to question the extent to which these issues are now factored in to the valuation. Right now, Domino’s stock trades at a similar price-to-earnings (P/E) ratio as Hollywood Bowl. That looks pretty reasonable for a market-leading, established brand that regularly records great margins. I think the £950m-market cap company is more recession-proof than more formal restaurants it and yields a solid 4.8%.
It’s also interesting to see that the share price hit similar levels back in 2019 and 2022 before recovering strongly on both occasions.
Now, history is no guide to the future in financial markets. But it might only take a slight improvement in trading for investors to take a fresh look at the company.
We won’t have long to wait to find out. Half-year numbers will be delivered on 5 August.
