Meme shares have been grabbing headlines with risky price swings lately. Nonetheless, a extra conventional FTSE 250 firm has been quietly outperforming the market in the previous few weeks. Hollywood Bowl (LSE:BOWL) has seen its share price surge by a powerful 36% previously month, catching the eye of many traders.

What occurred?

This exceptional efficiency comes on the heels of a robust yr for the corporate, which has seen the shares climb by almost 30% over the previous 12 months. This development considerably outpaces the sector and the broader UK market, which have returned -3.1% and 10.8% throughout the identical interval.

So, what’s behind Hollywood Bowl’s latest success? The corporate, which operates bowling alleys and mini-golf centres throughout the UK, seems to be benefiting from an ideal storm of optimistic elements.

Firstly, it boasts strong fundamentals. With a price-to-earnings ratio of 15 instances, the inventory is buying and selling under the UK market common of 16.8 instances. This means it could nonetheless be undervalued, regardless of its latest positive aspects. The corporate’s earnings grew by a powerful 12.4% over the previous yr, and analysts forecast additional development of 6.35% per yr shifting ahead. This isn’t mind-blowing by any means, however regular development could be a very engaging proposition for long-term traders.

Robust fundamentals

The corporate’s monetary well being additionally seems strong. It operates with zero debt, giving it monumental flexibility in an unsure financial atmosphere. In contrast to many firms nonetheless reeling from the pandemic, a robust stability sheet has allowed the corporate to not solely climate latest challenges but additionally to spend money on alternatives.

I believe traders have additionally been inspired by the agency’s dividend coverage. The inventory at present affords a really beneficiant 4.7% yield. With a pay-out ratio of 61%, there’s loads of room for future will increase. Certainly, the corporate not too long ago introduced a rise in its first-half dividend to £0.04 per share, demonstrating confidence in its monetary place and a dedication to shareholder returns.

Dangers

Nonetheless, potential traders needs to be conscious that the inventory’s speedy rise hasn’t gone unnoticed. A reduced money move (DCF) calculation now considers the agency to be roughly 15% overvalued, suggesting that a lot of the near-term development is over. Moreover, there was important insider promoting over the previous three months, which may very well be a trigger for warning. In fact, this may be totally unrelated to firm efficiency, however doesn’t encourage me if administration aren’t placing their cash the place their mouth is.

One for the watchlist

Whereas Hollywood Bowl’s latest efficiency has been spectacular, the leisure trade may be cyclical and delicate to financial situations. I believe the latest transfer has been totally justified, however the shares are actually doubtlessly pretty priced. I like what I see within the firm. Nonetheless, I reckon my cash may very well be working more durable elsewhere. I’ll be including it to my FTSE watchlist for now.