Acushnet Holdings Corp owns the stock with the ticker symbol GOLF. This company is a retailer that specializes in golf equipment, accessories and apparel. It focuses on everything from design and development to distribution and manufacturing of golf-related items. The firm owns multiple businesses. The two primary companies under the Acushnet umbrella are Titleist and Footjoy.
Titleist is a globally recognized brand and a leading developer and manufacturer of golf balls, clubs as well as other golfing accessories. Footjoy is also a globally-recognized brand for golf shoes, apparel and gloves.
The company’s primary source of revenue is still derived from selling equipment to active golfers. The revenue earned from its other subsidiaries only makes up a minor portion of all revenues.
To uncover the valuation of GOLF, we are going to start by looking at the return on equity for this company. ROE or return on equity is calculated as follows:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, Acushnet Holdings has the following ROE:
22 percent = US$256m ÷ US$1.2b
The return is the earnings after tax for the previous year. This indicates that for every $1 in shareholder equity, $0.22 in profit was earned.
Another way to value GOLF is a discounted cash flow forecast analysis. At the time of research, the upside for GOLF was as high as $58 per share, representing 21% upside.
How GOLF Makes Money
GOLF focuses on new product launches, brand innovation and strategic partnerships to spur growth.
Product development pipelines are reported to be thriving for Titleist and FootJoy. And while investors have reasons to be optimistic about future product lines sales, inventory challenges should be expected. This is primarily due to raw material shortages, disrupted production schedules, longer component lead times and increased freight costs.
However, Acushnet Holdings Corp can alleviate these risks to some extent through strong strategic partnerships. With supply chain companies who boast impressive financials themselves, these partners can invest in their infrastructure, which helps to alleviate some of the challenges otherwise faced. It’s a well-known strategy employed by other titans of industry, like Apple, who may for example support key suppliers with financing to keep them afloat.
In terms of future growth and opportunities, Acushnet Holdings Corp is looking to accelerate its investments in digital infrastructure. The firm expects these investments to result in the continued expansion of both B2B and B2C capabilities.
These investments should drive improved service levels, shorter lead times and enhanced user experiences for trade partners and end-user golfers.
Similarly, management plans on transitioning to centralized U.S. distribution centers to provide faster and more cost-effective fulfillment for a wide range of their products.
Does GOLF Have a Sustainable Advantage?
The Moat of a company’s stock was first conceptualized and named by the legendary investor, Warren Buffett. An economic moat is a measure of a company’s ability to maintain its profitability over the years through distinct advantages over the competitors.
This means that even during industry downturns or challenging economic climates, the business can still sustain market-beating top and bottom lines for the benefit of shareholders.
One of the most significant advantages that GOLF possesses is its brand positioning for its two primary companies: Titleist and Footjoy. Titleist is ranked among the top three big-name brands in golf.
Titleist has the most popular golf ball globally, and by a fairly substantial margin. Indeed 69 percent of PGA golfers use Titleist golf balls. Anecdotally, at the 2021 Memorial Tournament, 83 percent of players used Titleist golf balls, while the nearest competitor held a 12 percent share.
Another advantage for GOLF is its diverse product line. Footjoy brings the number one golf shoe and gloves to the table, which complements Titleist’s dominance in the golf ball industry.
The strong relationships with supply chain manufacturers ensures the ongoing success of Acushnet Holdings Corp.
GOLF Risk Factors
We examine five common areas that can help determine the risk potential for a company, including:
- company size,
- trading liquidity,
- price momentum,
- earnings yield and
- dividend yield.
GOLF has a market cap of $4.03 billion and a revenue of $521 million in quarter three alone. This makes GOLF one of the top earners in the golfing industry, providing a low-risk rating.
The trading liquidity is essential in determining how easy it is to sell the stock without affecting the price.
The higher the average daily dollar volume over the past 30 days implies lower liquidity risk.
- Daily Dollar Volume: $12,473,434
The price momentum can be a predictor of future returns. Many investors feel that seeking out higher-price momentum stocks, also known as recent winners, is a low-risk strategy.
- Stock Price Change (1-Year): 44.41 percent
The earnings yield can help to identify whether or not there is potential for capital gains through increasing profitability.
Earnings may be a sign of corporate stability. Companies with stronger earnings tend to have a lower risk.
- Earnings Yield (E/P): 6.84 percent
The dividend yield can provide a steady income stream and predictability of future payments..
- Dividend Yield (D/P): 1.3 percent
Analysts rate GOLF as having solid financials and a low-risk investment when considered over a longer term horizon. Nevertheless, in the current economic environment, there are two primary risks impacting GOLF:
- the raw material constraints
- industry price increases that impact the demand side of the industry.
The payout ratio of Acushnet Holdings has been 39 percent over the last three years (where it is retaining 61 percent of its earnings), which is reasonable. This implies that its dividend is adequately covered and given the company’s strong growth, and it appears that it is investing profits effectively.
Furthermore, Acushnet is dedicated to sharing its earnings with shareholders, evidenced by its long history of five years of paying a dividend.