There is No Debate, Callaway Golf Still Straight Down the Fairway

In Monday’s Goldman Guide we discussed the presidential debate that occurred that night. The pundits have already declared the winners, basically along party lines. Call us cynical, but the debate was not exactly the famous Lincoln-Douglas debates, probably closer to the Palin-Biden affair. It is hard to get excited for the election when these are the candidates we have. No wonder people look to sports and entertainment for ‘heroes’.

The world of golf takes center stage this week with the biennial Ryder Cup in Minnesota pitting Europe versus USA. On a sad note, one of the game’s greatest, Arnold Palmer, passed away this week. He is clearly on the Mount Rushmore of golf, and from a character perspective, clobbers the two clowns we have running for president. But we digress.

With the attention the game has it is time to look for a solid play. Three years ago we featured Callaway Golf Company (NYSE – ELY - $11.78) at $6.80. The stock is up 74% since then and has a good run over the last year as illustrated by the chart below along with the 100-day EMA signal, which the ELY is trading well above.

ELY 1-Year, 100 Day EMA

(Source: www.otcmarkets.com)

Callaway Golf Company, together with its subsidiaries, designs, manufactures, and sells golf clubs, golf balls, golf bags, and other golf-related accessories. It offers drivers, fairway woods, hybrids, irons, wedges, and putters. The Company also designs and sells golf accessories, such as packaged sets, golf bags, golf gloves, golf footwear, golf apparel, travel gear, headwear, towels, umbrellas, eyewear, and other accessories under the Callaway Golf, Odyssey, and Strata brand names. In addition, it licenses its trademarks and service marks for use on golf related accessories, such as golf apparel and footwear, golf gloves, prescription eyewear, and practice aids. The Company sells its products directly to golf retailers, sporting goods retailers, and mass merchants; and to third-party distributors in the United States, as well as in approximately 100 countries.

For those who do not follow golf, Nike, Inc. (NYSE – NKE) is getting out of the game. This presents a great opportunity for Callaway to poach some of the big stars of the game for sponsorship. This is a key factor in driving sales. At the stock analytical level, the Company has performed extremely well when it comes to EPS, meeting or exceeding expectations four quarters in a row. On the technical side our favorite short float metric is a low 2.1%. Additionally, the Company had $67.6 million cash on with only $5.8 million in debt as of the end of 2Q 2016. Finally, the operating and profit margins are both at 4.5%, well above the approximate 2.5% averages for similar market cap consumer stocks.

Consensus Wall Street estimates for revenue growth are over 3% for 2016 and 2017. We believe ELY is a solid hold or buy on the golf industry and see the stock climbing to $15 sometime in 2015.

Have a great day!

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