I asked ChatGPT which UK shares are most at risk in a stock market crash. It named this FTSE 250 firm

It feels unfair {that a} inventory market crash is more likely to hit FTSE 250 shares more durable than their FTSE 100 counterparts simply because they’re smaller. However decrease buying and selling volumes often make for larger strikes – up or down.

After I requested ChatGPT which UK shares is perhaps most in danger if share costs fall abruptly, it recognized Hollywood Bowl (LSE:BOWL) as a candidate. I get the reasoning, however I’m not satisfied.

Hazard indicators

There are undoubtedly dangers with the enterprise that would put the inventory in peril in a crash. One is it’s closely uncovered to UK client spending and that’s been below stress from all sides not too long ago. 

Unemployment’s up, job vacancies are down, and wage progress’s slowing. On prime of that, inflation‘s nonetheless above the Financial institution of England’s goal price and persevering with to weigh on family budgets. 

All of these are potential issues for Hollywood Bowl buyers. The corporate relies on folks having disposable revenue and the macroeconomic indicators are that they’ve much less of it. 

If a UK recession brings on a inventory market crash, the corporate’s measurement may nicely depend towards it. The agency’s each day buying and selling quantity is usually within the area of 600,000-800,000 shares. 

In contrast, Barclays – a FTSE 100 inventory with an identical share value – sometimes sees between 25m and 35m shares altering fingers in a day. And that naturally makes the inventory much less risky.

Decrease buying and selling volumes imply much less liquidity, which makes it more durable to discover a purchaser when issues get tight. However I feel a crash is perhaps a chance for buyers within the inventory.

Alternative knocks

For buyers who’re ready nonetheless, falling share costs can current unusually good alternatives. And the identical goes for companies when issues get powerful.

It’s uncommon that I spotlight an organization’s steadiness sheet as a purpose to contemplate shopping for it. However with no financial institution money owed and £15m in money, Hollywood Bowl’s an uncommon exception. Having extra money ought to put the corporate in a powerful place in a recession. When demand falters, companies with excellent loans nonetheless have to search out methods to make curiosity funds.

This could get them into difficulties with their leases, resulting in websites closing – and landlords searching for new tenants. However this may be a chance for extra conservatively-financed companies.

A scarcity of tenants can result in decrease rents. And Hollywood Bowl ought to discover alternatives to open new places on beneficial phrases, in addition to renegotiating present leases.

I’m a giant fan of cyclical companies which can be in a position do offers when demand’s weak and costs are low. This could set them up for long-term success and Hollywood Bowl appears to be like attention-grabbing.

Funding technique

The cyclical nature of Hollywood Bowl’s enterprise makes it weak to a recession. And if this brings a inventory market crash, I feel the share value may fall greater than most. In that sense, I agree with ChatGPT. However I additionally assume the agency’s steadiness sheet means it needs to be in a powerful place to benefit from any broader weak spot within the trade. 

I’m trying to take an identical method with the inventory. I’m undecided now’s the time, however I’m maintaining a tally of it in case one thing dramatic occurs.