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Here's Why I Am Staying Away From Callaway Golf

William Bias profile picture
William Bias


  • Golf participation has been on the decline over the past decade.
  • In FY 2014, Callaway Golf showed its first profit and free cash flow in years.
  • Callaway Golf’s focus on cost cutting and high margin items may only serve as a buffer against further declines.

It's important for long-term investors to develop a guide for doing their investment research. Over the years I have developed questions to guide me in my thinking when researching the publicly traded universe. These questions represent a good starting point before doing more in depth research. Let's look at Callaway Golf (NYSE: ELY).

1.) What does the company do?

When you buy shares in a company you effectively become part owner of that company. Therefore, it's important for an investor to understand what a company sells. Essentially, Callaway Golf distributes high quality golf equipment and accessories.

2.) What do the fundamentals look like?

Investors should also look for companies that grow revenue and free cash flow over the long-term, retaining some of that cash for reinvestment back into the business and for economic hard times. Excellent revenue and free cash flow growth serve as catalysts for superior long-term gains.

Golf has suffered from a declining participation rate over the past decade. Over 800 golf courses have closed during that time. This pressured Callaway Golf's fundamentals as a result. Over the past five years Callaway Golf saw its revenue decline 16% (see chart below). Cost cutting efforts and an emphasis on higher margin items contributed to a turnaround in Callaway Golf's bottom line. In 2014, Callaway Golf registered net income for the first time since 2008, clocking in at $16 million. The company also saw its first free cash flow reading since 2009, coming in at $26 million.

ELY Revenue (<a href=

ELY Revenue (NYSE:TTM) data by YCharts

However, Callaway Golf has struggled some in FY 2015 with its overall year-to-date revenue down 6%, when factoring out currency fluctuations due to "softer than expected market conditions" in the international market and a delayed product launch. This gives indication that the demand headwinds continue. Callaway Golf's year-to-date net income declined 17% year-over-year, and its

This article was written by

William Bias profile picture
I have been analyzing stocks since 1992 and a freelance writer since 2012.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (10)

Probably the worst analysis of a stock I've read in quite some time.
William Bias profile picture
Why thank you 14062202.

I prefer Titleist golf balls, Taylor Made woods, Mizuno irons, FootJoy shoes and gloves and Under Armor shirts. In no categories do I prefer Calloway.
William Bias profile picture
Thanks for your readership Arthur.

Lord Baltimore profile picture
Rounds played according to PGA PerformanceTrak are up 2.2% thru June YTD.

TopGolf, as mentioned above, is a huge hidden asset that is not contributing to ELY earnings from an accounting standpoint but is worth quite a bit per share ($2-3/share by my estimates currently... More as it grows) and is opening stores on plan including a huge $50mn store in Las Vegas. It is a potential IPO candidate which would be a big catalyst for ELY and is reason enough to own the stock if one wishes to ignore the outstanding management team that has turned this troubled brand around to lead the industry in only three years.
William Bias profile picture
Thanks for your readership.

Cooll handle.

Good info I think to ponder on. Thanks
William Bias profile picture
Your welcome Count The Cost.

MFITZ profile picture
Low-grade desktop (or bedroom) analysis.

Forgets to mention that:

New Callaway clubs are killing Taylor Made ?

Callaway's shareholding in "Top Golf" could becomee worth > Callaway ?

Some great write-ups on Callaway in SumZero (actual analysis).

An interesting stock, worth of more analysis than this post.
William Bias profile picture

I appreciate your readership!

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