Callaway Golf Ripe For The Picking

Nov. 6.12 | About: Callaway Golf (ELY)

One stock that has recently caught my attention, and it happens to be at a low price, is Callaway golf (NYSE:ELY). Of course small-cap stocks tend to be more volatile than their large-cap counterparts, but timing the small caps could lead to insurmountable gains.


Callaway Golf is is engaged in the designing, manufacturing and selling of golf clubs, golf balls, and other accessories used for the sport. The current market price, and Friday November 2nd closing, is $5.72. The current market price, according to the analysts, is highly undervalued to its one-year price target of $7.79 (a 36% price pop). Now that seems like a great deal, right? Let's take a look at what is driving this prediction especially since the company has lost over 70% of its market value from its peak in 2007.

The company has experienced sales decline in excess of 21% since its peak, but is expecting a turnaround with its new CEO, Chip Brewer. Chip was hired in February and is no rookie to the industry; in fact the man lives and breathes golf. I am not in any way an expert when it comes to golf, but do trust the experts when they say Mr. Brewer is the closest thing to Ely Callaway. Not only does Chip have an MBA from Harvard but also receives praise from Callaway Board Chairman Ronald S. Beard:

Chip has extensive knowledge of all facets of the golf business, particularly in the sales and marketing area, and has a real passion for the game of golf. Chip also has great relationships with customers and others in the golf industry and he has done a great job turning around and leading Adams Golf. We believe he is the right leader to entrust with our valuable brands, and the board looks forward to working with him to restore profitability and increase shareholder value.

Since becoming CEO, Chip sold off two noncore businesses, Ben Hogan clubs and Top-Flite balls, and has licensed its apparel and footwear business. The proceeds of the sell-off are going towards a revamp in the marketing and advertising departments in order to pick up a larger share of the market and make up lost ground from a previously weak campaign.

Callaway has a strong balance sheet that is free of long-term debt (net debt is 9.5% of total capitalization), which puts the company at an advantageous position financially. With a recent upgrade to "strong buy" I feel that there is little to lose with the company but lots to gain. Sales have begun to pick up and are expected to return to profitability by 2013. I believe Callaway is ripe for the picking, completely bottomed out and a strong recommendation.

Index - P/E - EPS -1.93 Insider Own 0.40% Shs Outstand 70.99M Perf Week -3.54%
Market Cap 406.06M Forward P/E - EPS next Y -0.02 Insider Trans 46.40% Shs Float 70.10M Perf Month -11.04%
Income -125.47M PEG - EPS next Q -0.48 Inst Own 90.97% Short Float 10.04% Perf Quarter 7.92%
Sales 868.00M P/S 0.47 EPS this Y -515.43% Inst Trans 3.00% Short Ratio 11.07 Perf Half Y -4.67%
Book/sh 6.08 P/B 0.94 EPS next Y 97.40% ROA -15.91% Target Price 7.79 Perf Year 3.06%
Cash/sh 0.83 P/C 6.87 EPS next 5Y 11.50% ROE -25.87% 52W Range 4.97 - 7.26 Perf YTD 4.00%
Dividend 0.04 P/FCF - EPS past 5Y 49.60% ROI -19.84% 52W High -14.19% Beta 1.25
Dividend % 0.70% Quick Ratio 1.72 Sales past 5Y -2.73% Gross Margin 31.88% 52W Low 25.34% ATR 0.20
Employees 2100 Current Ratio 3.11 Sales Q/Q -14.63% Oper. Margin -10.95% RSI (14) 57.91 Volatility 4.69% 3.09%
Optionable Yes Debt/Eq 0.00 EPS Q/Q -31.95% Profit Margin -13.27% Rel Volume 2.53 Prev Close 5.72
Shortable Yes LT Debt/Eq 0.00 Earnings Oct 25 AMC Payout - Avg Volume 635.81K Price 6.23
Recom 1.80 SMA20 2.76% SMA50 2.84% SMA200 1.99% Volume 453,345 Change 8.92%
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Disclosure: I am long ELY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.