If you've ever played a round of golf, or watched it live or on TV, you're likely familiar with the goods manufactured by Acushnet Holdings. The company makes products used widely in the sport, notably the Titleist line of balls and clubs.
Acushnet Holdings is about to tee off as a publicly traded company following its IPO this week. Let's take a shot at gauging its viability as a stock.
Making par for over 80 years
Acushnet's roots date back to 1932, when its predecessor company began manufacturing golf equipment in Acushnet, Massachusetts. Since then it's changed hands through several acquisitions and reformations, the latest of which saw it bought by Asian sports apparel maker Fila Korea and a consortium led by affiliates of South Korea's largest private equity player, Mirae Asset.
The IPO is essentially these shareholders cashing out of part of their holdings. Acushnet Holdings itself will receive no proceeds in the issue.
The company organizes its business into four reporting segments -- Titleist golf balls, responsible for 36% of last year's total net sales, Titleist golf clubs (26%), Titleist golf gear (9%), and FootJoy golf wear (28%). Spread across these divisions are five distinct brands: Titelist, Pinnacle (balls), FootJoy (shoes and apparel), Vokey Design (wedges), and Scotty Cameron (putters).
Over the past four fiscal years, Acushnet Holdings has reported net sales that range within a fairly tight band from just over $1.45 billion to almost $1.54 billion. Its bottom line attributable to shareholders (after accounting for preferred dividends and other adjustments) however, has been erratic over that time span, ranging from an almost $15 million loss last year to a $3.9 million surplus in 2014.
That line item would have landed more consistently in the black if it weren't for interest expenses -- the company has a high amount of long-term debt and capital lease obligations. Although these have been falling at an encouraging rate since at least 2011, they're still relatively high, standing at $836 million at the end of last year.
This Fool's take
In its prospectus, Acushnet Holdings strikes an optimistic note about the future potential of its business, citing research that indicates the number of rounds played in the U.S. has been growing since the start of last year.
That does, however, follow an overall decline in the metric from 2006 to 2014. This recent improvement is encouraging, but it's too soon to determine whether it's a blip or a long-term development. I wouldn't put my money on the latter; as the company says, golf is "a recreational activity that requires time and money." In other words, it's not a trend that young tastemakers can hop on as easily and cheaply as, say, the bushy beard or craft beer crazes.
Meanwhile, Acushnet Holdings' fairly static top line and the high level of indebtedness would worry me if I were an investor. I'm also not really a fan of equity cash-outs, as the driving motivation of this activity is to put money in the hands of existing shareholders, not raise funds for the business.
Besides, the company is not the only game in town for golf supplies. Ever-powerful Nike (NYSE:NKE), as it does with practically every other sport, offers a line of equipment and apparel dedicated to the links. Like Acushnet Holdings, Nike sells clubs, gear, and even balls. Its products have that sleek Nike edge that is probably more attractive to younger players; Acushnet Holdings' brands are generally more traditional.
On the specialist end of the market is Callaway Golf (NYSE:ELY). This company covers the same broad product categories as Acushnet Holdings (clubs, apparel, and balls). But Callaway Golf has also ventured into other segments such as training aids. Callaway Golf will even help you pinpoint your next shot with a line of laser rangefinders, slick 21st-century pieces of golfing equipment absent from the catalogs of Acushnet's brands.
For those who are willing to overlook these factors and believe that golf will witness a significant upswing in popularity, maybe this stock is for you. Otherwise, it's probably not very compelling at the moment.
Acushnet Holdings is scheduled to start trading Friday, Oct. 28, on the New York Stock Exchange under the most appropriate ticker symbol possible: GOLF. The company is seeking to sell just over 19.3 million shares of its stock, priced at $21 to $24 apiece.
The underwriting syndicate is led by JPMorgan Chase's J.P. Morgan unit and Morgan Stanley.