Callaway Golf Company (ELY) in Carlsbad, Calif., is a leading tech-enabled golf company that manufactures golf equipment, lifestyle apparel, and other accessories, with more than four decades of experience. It operates through two segments: Golf Equipment; and Apparel, Gear, and Other.

ELY’s shares have gained 1.4% in price over the past year because the gradual resumption of outdoor activities resulted in bullish investor optimism.

However, the stock declined 3.4% year-to-date because increasing COVID-19 omicron variant cases worldwide have motivated investors to bet on stable defensive stocks amid surging market volatility.

Here is what could shape ELY’s performance in the near term:

Impressive Growth Prospects

Analysts expect ELY’s revenues to increase 87.5% in its fiscal fourth quarter (ended December 2021), 96.6% in fiscal 2021, and 17.3% in 2022. The consensus EPS estimates indicate a 15.2% year-over-year improvement in the about-to-be-reported quarter, a 3% rise in fiscal 2021, and a 7.2% increase in the current year. In addition, the Street expects ELY’s EPS to improve at a 12.9% CAGR over the next five years.

Share Repurchase Program

On Dec.13, 2021, ELY’s board of directors authorized a $50 million share repurchase program. The company is expected to assess market conditions, buying opportunities, and other factors before repurchasing ELY shares in the open market or private transactions. The repurchase program is expected to reduce the number of outstanding shares, thereby increasing EPS and ROE.

Mixed Valuation

In terms of forward non-GAAP P/E, ELY is currently trading at 41.38x, which is 189.8% higher than the 14.28x industry average. Its 3.21 forward non-GAAP PEG ratio  is 243.5% higher than the 0.93 industry average. In addition, the stock’s forward Price/Sales and EV/EBITDA multiples of 1.58 and 16.57, respectively, are significantly higher than the 1.17 and 10.66 industry averages.

However, ELY’s 1.40 and 9.35 respective forward Price/Book and Price/Cash Flow multiples compare favorably with the 3.40 and 12.92 industry averages.

Consensus Rating and Price Target Reflect Potential Upside

Of the eight Wall Street analysts that rated ELY, seven rated it Buy while one rated it Hold. The 12-month median price target of $42.50 indicates a 60.3% potential upside from Friday’s closing price of $26.52. The price targets range from a low of $29.00 to a high of $60.00.

POWR Ratings Reflect Uncertainty

ELY has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

ELY has a C grade for Momentum and Quality. The stock is currently trading below its 200-day moving average of $29.97, which is in sync with its Momentum grade. In addition, ELY’s 11% trailing-12-month net income margin is 67.7% higher than the 6.56% industry average. However, the company’s 13.95% and 4.16% respective ROE and ROA are lower than the 17.23% and 5.94% industry averages, justifying the Quality grade.

Of the 37 stocks in the Athletics & Recreation industry, ELY is ranked #35.

In addition to the grades I have highlighted, one can view ELY ratings for Growth, Sentiment, Stability, and Value here.

Bottom Line

ELY invested $30 million for a minority stake in privately-owned indoor golf and entertainment company Five Iron Golf in November 2021. This investment is expected to boost ELY’s long-term growth. However, because golf courses remain closed/ operate on a limited basis amid rising COVID-19 cases worldwide, it might take a while for ELY to generate profits from this investment. Thus, we think investors should wait until the macroeconomic headwinds subside and ELY resumes operations at full capacity before investing in the stock.

Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in ELY for a 47% gain. Learn more about the RTR service here.

How Does Callaway Golf Company (ELY) Stack Up Against its Peers?

While ELY has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Vista Outdoor Inc. (VSTO), Columbia Sportswear Company (COLM), and Johnson Outdoors Inc. (JOUT), which have a B (Buy) rating.

Note that VSTO is one of the few stocks handpicked by our Chief Value Strategist, Steve Reitmeister, currently in the POWR Value portfolio. Learn more here.

Note that COLM is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

ELY shares were trading at $25.64 per share on Monday morning, down $0.88 (-3.32%). Year-to-date, ELY has declined -6.56%, versus a -3.22% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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