Stock Sonar #13 - 6/28/2023

Topgolf Callaway (NYSE:MODG) — mrkt cap $3.58B; Price $19.92; trailing P/E NA

PASS. The company generates revenue through the sale of golf equipment, apparel, and golf-related entertainment, particularly through its acquisition of Topgolf in 2021. The game of golf has experienced significant growth since the pre-pandemic era, with a 13% increase in total golf rounds played in 2022 compared to pre-pandemic averages. The rise in beginners has been particularly notable, with females and juniors representing a higher percentage. MODG aligns with this trend and contributes to its growth through innovative off-course ways to engage golfers (Topgolf). However, MODG’s acquisition strategies have lacked coherence, such as the non-golf related acquisition of Jack Wolfskin in 2018 for $476 million. Debt levels are high, and management has placed a substantial bet on Topgolf’s growth to drive profitability.

Acushnet Holdings (NYSE:GOLF) — mrkt cap $3.62B; Price $53.78; trailing P/E 18

MORE RESEARCH NEEDED. Acushnet Holdings the owner of renowned golf brands Titleist and Footjoy, is trading at around pre-pandemic levels despite the recent surge in golf’s popularity. Analysts are divided on the longevity of the golf trend, with recessionary concerns impacting discretionary spending. However, Acushnet has a track record of robust revenues during previous economic downturns, driven by its appeal to the more dedicated golfer. The company has effectively resolved recent supply chain issues through infrastructure and logistics improvements. Although the stock is not a giveaway, given the game’s health and ongoing momentum, Acushnet deserves further consideration.

BrightView (NYSE:BV) — mrkt cap $669mm; Price $7.15; trailing P/E NA

PASS. The company generates revenue through its commercial landscaping services and snow removal operations. These services are considered non-discretionary spends for businesses, making the business relatively durable and recession-proof. Despite being the largest landscape company, BrightView holds less than 3% market share in the highly fragmented domestic landscape industry. The company’s growth strategy heavily relies on mergers and acquisitions, resulting in a long-term debt accumulation of over $1 billion, with an annual interest cost of $100 million. Topline pressures have emerged due to below-average snowfall in the Northeast and significant increases in material and wage costs, leading to financial losses. BrightView has implemented cost reduction initiatives and is working on reducing its debt, but assessing their potential success is challenging.

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