How Will Callaway Golf (ELY) Stock Be Affected By An Industry Sales Decline?

NEW YORK (TheStreet) -- Shares of Callaway Golf Co. (ELY) are up 1.61% to $7.59 in late morning trade but golf has recently been described as an industry "under pressure and in "structural decline," according to the Financial Times.

For one, Dick's Sporting Goods (DKS)  this week took $20 million in charges relating to its golf business, including severance payments for around 500 PGA professionals who helped sell golf equipment in its stores but are now being laid off.

Market researchers Golf Datatech says the number of rounds played in the U.S. dropped 4.9% last year. The fall in the first half of 2014 is 2.1%. Similar slumps have been hitting golf's other big market, the U.K., the Times said.

 

That decline is the reason for sluggish golf sales, down 3.5%t in the first half to $1.4 billion, according to Golf Datatech. The most worrying trend is the slump in the sale of woods, down 14%.

Equipment manufacturers have exacerbated the problem by pushing too many models into the market, analysts say. New ranges of woods used to come on sale once a year, but some brands are speeding up this cycle.

TheStreet Ratings team rates CALLAWAY GOLF CO as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate CALLAWAY GOLF CO (ELY) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, increase in stock price during the past year and expanding profit margins. However, as a counter to these strengths, we find that the growth in the company's net income has been quite unimpressive."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has significantly increased by 178.82% to $93.46 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 163.17%.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Leisure Equipment & Products industry and the overall market, CALLAWAY GOLF CO's return on equity significantly trails that of both the industry average and the S&P 500.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Leisure Equipment & Products industry. The net income has significantly decreased by 66.5% when compared to the same quarter one year ago, falling from $10.07 million to $3.37 million.
  • You can view the full analysis from the report here: ELY Ratings Report
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