Shares of TopGolf Callaway stock (MODG 0.83%) started roaring higher this week, according to data from S&P Global Market Intelligence. The golf equipment and entertainment company started moving higher after reports a South Korean investor group was going to buy its golf equipment and apparel business. However, management refuted these claims and said they weren't aware of any talks.
As of 2:57 p.m. ET on Friday, March 22, shares of TopGolf Callaway are up 13.7% this week.
Is the company selling? No, according to management
A report surfaced this week in a South Korean newspaper that a Korean investment firm was the frontrunner to acquire Callaway's equipment brands as well as its lifestyle brands, such as Travis Mathew. Korean entities own two of the larger golf-equipment brands in the world -- Titleist and TaylorMade -- making this acquisition of Callaway not far-fetched. According to the report, the TopGolf entertainment business would remain a separate company.
TopGolf Callaway's management put out a note to shoot down these claims, saying they are not aware of these talks. Regardless, a report is a report, and investors took these rumors as signs there are conversations going around -- whether officially with management yet or not -- of putting out an offer for some of TopGolf Callaway's assets. With the stock beaten down to a market cap of just $2.86 billion, investors are likely betting that an asset sale can unlock immediate value for struggling shareholders.
This report is the key reason why TopGolf Callaway stock shot up this week. It is now up to a record high for 2024 after spending the last few years trending lower with worsening key-performance indicators for its business operations. The stock is still well below its 2021 highs, though.
What investors should focus on
A buyout could create immediate shareholder value, but this is not something a regular individual investor can control. What you should be focused on instead is asking whether TopGolf Callaway's three business units -- golf equipment, apparel, and TopGolf -- will start to improve their performance in 2024. TopGolf is seeing declining traffic at its locations, with same-store sales down 3% last quarter. Equipment was unprofitable in the fourth quarter. Apparel is doing well, hitting over $1 billion in sales and $100 million in operating earnings for the first time.
The stock is not a demanding price with the market cap down so much in recent years. Investors might get a nice pop if a buyout occurs, but more value will be generated from growing earnings from these three business units at the end of the day.
