Good companies can become bad investments – Hollywood Bowl is a prime example

The company also said in its trading update that it now expects full-year performance to exceed previous market expectations. The view follows a strong recovery in its financial performance following the end of pandemic-related restrictions.

Indeed, it posted record first-half revenues, 36% higher than the same period in fiscal 2019, as pent-up demand following the shutdowns prompted consumers to return to leisure activities.

But now that consumers are increasingly concerned about the effects of inflation and the novelty of post-lockdown leisure activities is fading, the company’s future financial performance could disappoint.

While its stock price is down 8% in the past month, it is still 1% higher than at the start of the year despite the rapidly changing outlook for the industry.

By contrast, a number of other consumer-focused companies have seen significant declines in market value this year as investors priced in an increasingly difficult economic outlook. Therefore, there are better value opportunities available elsewhere in the “consumer discretionary” sector.

Hollywood Bowl remains a good company that is in a strong position to survive short-term challenges. It carried out a £30m share sale in March 2021 which strengthened its balance sheet as, at the end of March this year, it had net cash (excluding rental) of almost £50 million.

This gives it a strong chance of emerging from a potential downturn in the leisure industry in a stronger position than its rivals in the sector.