Black Diamond Inc (BDE), Callaway Golf Co (ELY): Three Small-Cap Consumer Goods Companies

According to Chip Brewer, Callaway Golf Co (NYSE:ELY)’s CEO: “The strength of our 2013 product line, including our new X Hot products and Versa line of putters, allowed us to achieve a 12% increase in net sales on our current business on a constant currency basis. In addition, we are beginning to see the results of the many cost-reduction and other initiatives we took in 2012, which contributed to improvements in gross margins and operating expenses, and all of which culminated in a $23 million increase in non-GAAP operating income for the first quarter of 2013.”

Trading at 134% price to book value and with a market capitalization just below $500 million, I think Callaway Golf Co (NYSE:ELY) is a great M&A candidate and a stock to keep on your watch-list.

Music’s finest investment

In Michael Steinway Musical Instruments Inc (NYSE:LVB)‘s (Steinway Musical Instruments Inc (NYSE:LVB)‘s CEO) words: “Our first-quarter results demonstrate significant improvement in our profitability profile. Overall, our gross margin jumped 330 basis points while EPS rose fourfold. Our band division turned in an outstanding operating performance, with gross profit up more than 16%. While we posted a slight decrease in total revenue as compared to the prior-year period, we are confident that the robust U.S. piano sales we saw this quarter will continue and that our strong order position in Europe and Asia will contribute to solid results for the year overall.”

I most definitely think that the company would be a perfect M&A candidate for many private equity firms. With a market capitalization of $365 million, no debt  and stable sales, I would go long on Steinway Musical Instruments Inc (NYSE:LVB). At some point somebody will come to lever the company up.

Bottom line

The three companies named above are small but own incredible brands. I would keep a close watch on all of them. While Black Diamond Inc (NASDAQ:BDE) is a bet on growth, Callaway and Steinway are a bet on value. Out of these three I would only go long on Steinway.

Federico Zaldua has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Federico is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Three Small-Cap Consumer Goods Companies originally appeared on Fool.com is written by Federico Zaldua.

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