Callaway Golf Company (ELY)

JakilaTheHun (99.93) Submitted: 6/10/2009 8:18:17 AM : Start Price: $6.16 ELY Score: -0.56

I spotted this stock as one of the biggest daily losers on the CAPS main page. I'm not a golfer, but I do watch it on television occasionally and recognized the Callaway brand name. I've heard positive things about their products and the world's second most famous golfer, Phil Mickelson, endorses them. Based on that, I decided to dig into this one a bit.

Net tangible assets (NTAs) for ELY equals $6.34 per share. Even in spite of the recession, they still had positive earnings in their most recent quarter, with diluted earnings per share of 11 cents. That's in spite of a sharp revenue drop from last year. FY 2008 earnings were around $1 per share and FY 2007 were around 80 cents per share. Not sure how their earnings will fare moving forward, but even if I discount their NTAs down to $6 and assume they average 30 cents per share with a minimal 3% growth rate every year, I still come up with a valuation around $10.20 per share. If I up earnings to 50 cents per share, that jumps to $13.00.

I admittedly don't know much about Callaway's business, but I like the upside here and the net tangible assets should provide some cushion on the downside. Callaway has no long-term debt and not too many liabilities, so they appear to be in sound financial shape, as well. Under $6, this looks like a relatively good value.