This stock showed up on my screener also. Although prices have changed since your analysis was done, I’ll use your data for ease of comparison.

Here’s my thinking:

1. Start with the BWL market cap
2. Subtract the value of the stock portfolio (we can buy the stks ourselves)
3. Subtract the cash (I can hold my own cash, thank you).
4. Do you know the date and value that each bowling center was acquired? We can then use an implied appreciation rate to estimate the current Real Estate value, Then subtract the value of the real estate (if I want to buy real estate I can do it myself)
5. This leaves the implied value of the actual bowling business cashflows.
6. Earnings from operations/implied valuation #5= Cash Flow Yield

1. mkt cap: 5,135,690 shs x $15.91=$81,708,828
2. stk portfolio -$4,167,213 round off your cents!
3. cash -$2,330,704
4. real estate (the big question for everyone these days eh?)
I’ll assume 1MM per center x 19 centers = -$19,000,000
5. Implied Value of the Operating Co cash flow sum(#1 to #4) $56,210,911
6. Net Cash from Ops - CapEx $5,997,998 - $795,713=$5,202,285
$5,202,285/$56,210,911= 9.25% cash flow yield
***
My Comments:
9.25% isn’t bad.

Obviously, it all depends on the value of the real estate. Again, Do we know the date and price paid for each bowling center? We can then use an implied appreciation rate to estimate the current real estate value.

Alternatively (this is by no means professionally done, I just browsed the net) I estimate the value of a bowling alley lane as between $10,000 and $40,000 per lane based on sales of other bowling alleys across the USA.
As stated inthe original analysis, Bowl America has 726 lanes.

cash flow yield
726 lanes x 10,000= $7,260,000 gets 7.66%
726 lanes x 15,000=$10,890,000 gets 8.09%
726 lanes x 20,000=$14,520,000 gets 8.57%
726 lanes x 25,000=$18,150,000 gets 9.12%
726 lanes x 26,171=$19,000,000 gets 9.25%
726 lanes x 31,950=$23,195,700 gets 10.00%

Mind you, 10yr treasuries are yielding 3.84% (today).
Bowl America @ 9.00% ish? vs 10 year Treasuries @ 3.84%
Quite a difference in risk and reward!
This is were the art comes into it.
Comments are welcome

Great comments, the points you bring I think are more important than the earnings issues. Bowling can be affected by weather, gas prices, and a whole multitude of things outside of their control, so earnings bouncing around some isn’t concerning in the short term for me. I am interested in seeing the Q2 earning too, it could be an indicator for the future.

You bring up an interesting point in regards to purchasing out other operators, my personal opinion is that with the current CEO we won’t see much growth in the near term, I think he’s happy throwing out the current cash flow as dividends and keeping the business running.

And that brings me to the next point you mentioned, the senior management team. This was something that had me concerned when I initially purchased the stock. They seem to have run the company well in the past, but I’m not sure if their age is showing in the slowing growth of the company. With a more aggressive management team BWLA could really take off, this is the time to purchase down and out operators, and leverage their economy of scale to make the purchases profitable.

In regards to debt I don’t mind when companies don’t employ any leverage, the upside is limited, but the downside is limited also, BWLA owns their facilities and doesn’t have any payments to make, so they could survive a downturn in business. And that might be what we’re facing currently. I don’t think they’re afraid of debt, I just don’t think they’ve found a need yet. If they burned through the cash pile and wanted to expand they’d have to take out a line of credit. If you read through the SEC filings there is correspondence between the CFO and the SEC regarding the issue that BWLA doesn’t have a revolving credit facility in place. BWLA states that all growth is financed out of their cash.

Thanks again for your comments. As you’ve pointed out very well there are a lot of unknowns around Bowl America, but then again what value play doesn’t have similar issues. Is this a cigarette butt with one last puff left in it? I guess that’s the question that remains to be seen.

Thanks for your response. You are correct, expenses in the most recent first quarter did drop in dollar terms, but I was looking at operating expenses as a percentage of revenue, which increased from 84.5% to 90.6%, which I thought was rather shocking. Understandable, though, given the considerable fixed costs and the revenue drop. What I didn’t hear from the company was what they intended to do about it, which makes me wonder if the situation will continue to deteriorate. We’ll know soon enough, Q2 will be more important than Q1 anyway.

True, I agree that real estate prices are unlikely to revert to the low levels of years ago, but that is already factored into the stock price, which currently sells for a substantial premium above book value. Also, I suspect the book value may actually overstate the value of some assets. This may be a little too harsh, but used bowling equipment today is virtually worthless. There have been so many bowling center closings over the years that there is a glut of equipment out there and it can be difficult to get more than a few hundred dollars for that pinsetter that you recently paid twelve grand for if you went to sell it. And a building built for bowling is virtually worthless, too, unless you use it for bowling. For almost anything else, you’ve got to raze the building and build a new one.

As far as opening new locations, there have been literally hundreds of centers for sale across the country for years, there are so many marginal operators out there who would be willing to sell out, but I don’t see BWLA out there buying. Why not? I presume they look at the numbers and figure they can’t make a go of it. Makes me discouraged about the company’s growth prospects.

What do you think about the lack of leverage? Most companies have at least some debt because debt is generally cheaper than equity. That is, most bond holders getting steady payments demand less compensation than stockholders who receive more risky returns. Besides, and this is a biggie, debt is tax deductible and equity isn’t. I understand management’s stance that they don’t want to have any debt but it seems to me that it limits the rewards for shareholders who don’t benefit from a more optimal capital structure.

What also of the future management of the company? They aren’t going to live forever, and they’re almost all age 70 plus–have you seen a plan for this company surviving the majority stockholders? Is someone just going to buy the B shares and destroy the value of the company?

Thanks for the great comment. I always appreciate hearing a contrary viewpoint. I would agree that the drop in the last quarter earnings is concerning, I would disagree that expenses are rising, the current quarter expenses are actually less this year compared to last year.

I think investors need to have a little more patience concerning Bowl America finding new properties. In the past management has shown discipline in building new facilities, by not rushing in, and doing their homework first. I think the real estate market crash in DC could provide some great opportunities to pick up attractive parcels at a great price.

If as an investor you’re worried about their value dropping because of the large real estate holdings I’m reminded that most of the holdings are on the books at purchase price from 30 years ago. And even though the real estate market peaked and is crashing I find it hard to believe that prices will fall below what was paid 30 years ago.

Thanks again for the comment. My timeframe on any value investment is 5 years. Hopefully I’ll be proved right that Bowl America is undervalued, and in the mean time I’ll continue to collect the outsized dividends.

Nate