Globally, and especially in the US, one of the most popular sports for people to play is golf. Tens of millions of people flock to the golf courses near their homes every year in order to play a round or two. Naturally, such a large market would require the existence of large companies dedicated to providing various goods and services that make golf both possible and more enjoyable. One such publicly-traded company is Acushnet Holdings Corp. (NYSE:GOLF). Though many investors may not know that firm by name, they are certain to know some of the products the company manufactures and sells. Relative to other leisure activities companies, Acushnet Holdings seems to be more or less fairly valued. On top of that, the company has had a rough start to the 2022 fiscal year. But given how shares are priced on an absolute basis, there may be some decent upside here moving forward.
Today, Acushnet Holdings operates as the owner of two of the most popular golf brands in the world. Undoubtedly the most popular is Titleist, which focuses on vital golf equipment. And the other is FootJoy, which produces performance wearable brands. Under the Titleist brand name, the company sells golf balls, clubs, wedges, putters, golf bags, apparel, and more. Its golf balls, in particular, are among the most widely loved golf products on the planet. In fact, according to management, this brand of golf balls has held the number one spot in terms of market share for over 70 years. Meanwhile, under the FootJoy brand, the company sells a wide variety of offerings. Examples include footwear, apparel, and more. In addition to these two key brands, the company also owns other assets. In 2018, for instance, Acushnet Holdings acquired Links & Kings, which is focused on the design and handcrafted production of luxury leather golf and lifestyle products. And in 2019, the company acquired KJUS Outerwear and Apparel, which designs premium technical golf, ski, and lifestyle apparel for customers.
Though some may view golf as a dying sport, the fact of the matter is that, after many years of decline, it has shown signs of recovery. According to one source, in 2020, there were an estimated 24.8 million golfers in the US. That represented an increase of 500,000 compared to one year earlier and it was the third year in a row in which the number of golfers increased year over year. The increase was also the largest the industry saw in 17 years leading up to that point. And the 6.2 million new players that came onto the scene was the highest number of new players in a single year ever recorded. According to the management team at Acushnet Holdings, in 2021, there were over 66 million golfers worldwide that collectively played over 900 million rounds at over 31,000 golf facilities on nearly 38,000 golf courses. They peg the global market at about $12 billion in terms of the retail sales potential. That is in addition to the $9 billion associated with wholesale opportunities. All combined, the Americas represent about 40% of the global addressable market. The Asia Pacific region is even larger at 45%, while the EMEA (Europe, Middle East, and Africa) regions account for about 10%. It's also worth mentioning that the number of rounds played in 2021 was 8% higher than it had been in 2020.
Given this recent growth, combined with the acquisitions Acushnet Holdings engaged in, it should come as no surprise that recent performance by the business has been impressive. Between 2017 and 2019, sales increased modestly, climbing from $1.56 billion to $1.68 billion. In 2020, the COVID-19 pandemic pushed revenue down slightly to 1.61 billion dollars. But then, last year, sales surged to $2.15 billion. Net income has shown a similar trend, ultimately rising from $98.7 million in 2017 to $178.9 million last year. A similar trend can be seen with operating cash flow, which increased from a negative $27 million in 2017 to a positive $314.1 million last year. Meanwhile, EBITDA for the company also increased, climbing from $200.8 million in 2017 to $289.4 million last year.
Despite the recent growth the company has enjoyed, financial performance in the first quarter of the firm's 2022 fiscal year was a bit mixed. Revenue did increase nicely, climbing by 4.3% from $580.9 million to $606.1 million. However, net income decreased, falling from $85 million to $81 million. Operating cash flow was even worse, declining from a positive $30 million in the first quarter of 2021 to negative $164 million this year. Even if we adjust for changes in working capital, it would have fallen from $110.3 million to $103.5 million. Over that same window of time, EBITDA dropped from $135.3 million to $120 million.
Although the company started the year off on the wrong foot, management does have high expectations for the company. They currently expect sales to come in at between $2.175 billion and $2.225 billion. This would imply revenue growth, on a constant currency basis, of between 3.8% and 6.1% year over year. Meanwhile, EBITDA for the company should be between $325 million and $345 million. No estimates were given for operating cash flow or for net income. But if we assume both of those will grow at the same rate that EBITDA should, using the midpoint expectations for it, then net income should be around $207.1 million, while operating cash flow should be $363.6 million.
Taking all of this data, we can effectively value the business. Using our 2021 results, the company is trading at a price-to-earnings multiple of 16.3. This drops to 14.1 if we rely on 2022 estimates. The price to operating cash flow multiple should be 9.3. Our 2022 estimates would lower this to just 8. Meanwhile, the EV to EBITDA multiple should be 11.2. Based on my calculations, this should decline to 9.7 if management's own forecasts are correct. To put the pricing of the company into perspective, I decided to compare it to five similar firms. On a price-to-earnings basis, these companies ranged from a low of 4.8 to a high of 97.2. Using the EV to EBITDA approach, the range is from 3.9 to 381.8. In both of these cases, three of the five companies were cheaper than Acushnet Holdings. Using the price to operating cash flow approach instead, the range was from 7.1 to 38.3. In this scenario, only two of the five companies were cheaper than our prospect.
|Company||Price / Earnings||Price / Operating Cash Flow||EV / EBITDA|
|Acushnet Holdings Corp||16.3||9.3||11.2|
|Vista Outdoor (VSTO)||4.8||7.2||3.9|
|Callaway Golf Company (ELY)||7.4||11.3||7.3|
|YETI Holdings (YETI)||18.3||26.6||12.6|
|Latham Group (SWIM)||97.2||38.3||381.8|
|Sturm, Ruger & Company (RGR)||7.8||7.1||4.3|
Based on all the data provided, Acushnet Holdings seems to be more or less fairly valued relative to similar firms. But on an absolute basis, shares do look a bit cheap. The company is continuing to grow, though investors would be wise to keep track of current market conditions. After all, if the economy shows signs of weakening, golf will likely be one of the first things that people cut back on. But even as we saw in 2020, such a decline would not necessarily be significant. And when you factor in the quality, industry-leading brands that Acushnet Holdings owns, I cannot help but to be slightly bullish on the company.
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This article was written by
Daniel is currently the manager of Avaring Capital Advisors, LLC, a registered investment advisor that oversees one hedge fund, and he runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein.
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.