Investors can't seem to land on the green these days when it comes to Topgolf Callaway Brands (MODG -0.53%). The golfing gear and experiences leader has failed to participate in the rally that has helped lift the shares of many consumer-facing brands.
The pain has been particularly pronounced since the company reported problematic guidance earlier this month. The stock has plummeted 24% since its poorly received financial update on May 9.
The market isn't impressed by the company behind the Topgolf chain of high-tech driving ranges and several golf gear brands -- including its signature Callaway clubs, as well as the TravisMathew, Jack Wolfskin, and Ogio acquisitions -- which gave the company some skin in the apparel, footwear, and golfing-bag games. The appetite doesn't seem to be there for retail and institutional buyers, but the company itself is starting to get hungry.
The calls are coming from inside the house
In an SEC filing on Monday, Topgolf Callaway Brands announced that it was busy buying back a chunk of its shares outstanding last week. The board repurchased 1 million shares between Monday and Thursday at an average price of $17.83. Topgolf Callaway authorized $100 million in repurchases in May of last year, so last week's shopping spree accounts for roughly 18% of the earlier authorization.
The bad news is that the buyback didn't sway momentum back to the bulls. Topgolf Callaway eating its own cooking may have accounted for 7% of the trading volume over those four trading days, but the stock still closed nearly 5% lower for the week.
The more encouraging Monday afternoon filing came from Chief People Officer Rebecca Fine. She bought 7,000 shares in the open market earlier in the day, increasing her stake in the sporting-goods stock by nearly 50%. Buying shares a week after the board's binge failed to stabilize the price means she got a better price. Her purchase this week came at an average price of $16.23.
Fine's purchase is small, compared to the company itself making waves. Her Monday transaction is just for 0.7% of the shares and 0.6% of the value of last week's larger corporate move. However, it's encouraging to see an insider adding to her stake on a day when the shares hit a two-year low. A couple of her fellow executives had purchased shares of the company earlier this month.
There are plenty of reasons for insiders to sell a stock, but there's only one reason to buy. Someone who knows the company better than most outsiders feels that the shares will appreciate in the future.
Image source: Getty Images.
Par for the coarse course
Topgolf Callaway's first-quarter results were positive on the surface. Revenue rose 12% to $1.17 billion through the first three months of the year, exceeding the company's own expectations. Its adjusted profit of $0.17 a share was more than cut in half from the prior year's showing, but that was also ahead of Wall Street's earnings target.
Guidance is where the quarter missed the hole. Topgolf Callaway sees revenue growth slowing to a 5% to 7% increase for the current quarter. It kept its full-year guidance mostly intact but lowered its bottom-line forecast, as well as some of the performance metrics at its driving ranges.
The Topgolf chain is expected to keep building on its current streak of six quarters of positive comps, but the company is seeing a slowdown in its corporate events business since late in the first quarter. This only accounts for about 20% of the Topgolf segment revenue but is enough to move the needle.
Is the market overreacting to the weakness in a small part of the overall Topgolf Callaway business? The company emphasized in this early May call that walk-in retail traffic at Topgolf remains strong.
The shares are priced at 25 times the midpoint of its new adjusted earnings guidance for this year, but these are depressed bottom-line results. Topgolf Callaway stock is fetching a reasonable 18 times next year's projected earnings, a fair valuation if you believe that golfing will continue to grow its audience through the game itself or the popularity of its socially active driving ranges.
