Callaway Golf Co (NYSE: ELY) is one of the second wave golf companies to move into the sport. Ely Callaway started his company in 1982, with the smart concept that he wasn’t a good enough salesman to sell a mediocre product.
Since then, ELY has become one of the top golf equipment companies in the world. In the US, Korea, Europe, Japan and Korea it’s the No. 1 club maker. And it’s had over 75% market share growth in the past 6 years.
What’s more, its 5-year compounded annual growth rate (CAGR) is an impressive 12%.
Is Golf a Dying Sport?
Many people have been predicting the death of golf. They believe that millennials don’t have the time, money, nor interest to spend 4-6 hours on a golf course, for $100 a round after spending $1000 or $2000 on golf clubs and equipment.
But what is more likely happening is the space is becoming more concentrated. Fewer companies are entering the space and fewer companies are surviving in the space.
In the past 3 years, ELY has raised its gross margins by more than 10% and net cash from operations has nearly quadrupled. According to ELY’s market research data, new golfers are growing at a 6-year CAGR of 9.6% in the US, which means this is far from a dying sport.
The Asian Growth Market
Also, as the global recovery continues, Asia is a prime growth market. The Japanese and the Koreans are especially passionate about the game and ELY is the top brand in both countries, so its fortunes are certainly promising.
ELY also launched a joint venture in Japan with a former Japanese licensee in 2016. They opened their flagship Tokyo store last year and are planning to open 3 more this year. The JV sells all of the Callaway line including sportswear, OGIO bags and TravisMathew clothing.
ELY has diversified beyond just its brand and clubs and balls in recent years. It bought OGIO in January 2017. OGIO makes golf bags as well as high-end sports and travel bags. This takes ELY off the golf course and into their customers’ lifestyles.
It also purchased the California-based sportswear company TravisMathew last summer for $125 million. It’s know for its SoCal-cool vibe and it fits very nicely with ELY’s current branded clothing. ELY is expecting this division to be contributing to the bottom line this year.
With all this going for it, it’s no surprise ELY Q1 numbers in late April blew away expectations. And then ELY upped its guidance for the rest of the year.
ELY stock is up 41% year to date and it’s just beginning its next leg up.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
