Eye on Adams Golf

May. 2.07 | About: Adams Golf, (ADGF)

Known for its hybrid golf clubs Adam’s Golf (ADGO) is not an unknown brand. Anyone interested in golf has heard of this company. While that is obviously not what makes me interested in these shares, I just though I should point it out.

Last quarter (September 2006) revenue was 14,960 up from 10,180 or a 47% increase from a year ago. The company had a net loss of 500 for the quarter or a loss of two cents per share. For the nine months ended September 30, 2006 the company recorded a net income of 4,620 or 16 cents per share (diluted earnings).

Looking at the current balance sheet the company is in pretty healthy condition. As of the last quarter the company had 11,701 which was up from the previous year by 9%. The company had 13,869 and inventory of 22,869. The company uses FIFO to account for their inventory and records everything at the lower cost of the market. The company had prepaid expenses which weren’t disclosed worth 759. They had 14 in which they classify as other current assets.

Total Current Assets equaled 49,212 for the quarter.

Looking at their liabilities they had accounts payable of 7,228 and accrued expenses of 6,296. Total liabilities therefore were 13,525.

So how is the market valuing Adam’s Golf?

Well if we look at Net Current Asset Value which in a simple business like this will be roughly liquidation value you get

49,212
less 13,525
————–
35,687 million

So how does that compare with the current market cap? As of today the market cap on Adam’s Golf is (2.01 x 23,660,110 = 47.5 million dollars).

That’s a premium of only 33% to liquidation value. That means the market is currently valuing the actually business at 11 million dollars and if you include land it’s around 8 million dollars which is probably more accurate. Therefore, at least 77% of the market is in pure liquidation value.

The statement of cash flows hints that management thinks the stock is cheap. They purchased 186 worth of treasury stock.

While management is probably paid too much, the stock has soared in the last five years.

ADGO.OB 1-yr chart

ADGO.OB
Disclosure: none