We recently compiled a list of the 8 Best Golf Stocks To Invest In According to Hedge Funds. In this article, we are going to take a look at where DICK’S Sporting Goods Inc. (NYSE:DKS) stands against the other golf stocks.
Investing in the Booming Golf Industry
The golf industry has gained immense popularity for various reasons, making it a significant part of global sports culture. According to the National Golf Foundation, golf’s international reach is estimated at 123 million. In the US, over a third of the population aged 5 and older engaged with golf in 2023, a 30% increase since 2016. Its appeal lies not only in the challenge it presents, requiring skill, strategy, and patience but also in the social and recreational aspects it offers. Its inclusion in international events like the Olympics has contributed to its widespread acceptance and growth, attracting diverse demographics across different countries.
As reported by Grand View Research, the global golf equipment market, valued at $7.48 billion in 2022, is expected to grow at a 5.0% CAGR from 2023 to 2030. This growth is fueled by rising disposable incomes, increased golf course development, global golf tourism, and the rising participation of women in the sport. Innovative product development by industry leaders is further driving market expansion. While the COVID-19 pandemic disrupted the market due to global lockdowns, the industry is recovering and is expected to see continued growth.
Following a notable boom in 2020, total golf participation in the US surpassed 40 million for the first time in 2022, highlighting the sport’s increasing popularity, according to NBC Sports Next. Several key trends are shaping the golf landscape in 2024. First, women are playing a pivotal role in driving golf’s popularity, with recent studies revealing that they constitute 49% of surveyed golfers. The National Golf Foundation reported a remarkable 15% increase in female golfers from 2020 to 2022, contrasting sharply with a mere 2% rise among male golfers during the same period.
Additionally, golf has transformed into a social experience, with nearly half of the surveyed golfers indicating they primarily play with friends. This shift emphasizes the communal aspect of the game, which can be leveraged by course managers to tailor marketing strategies and enhance engagement. Furthermore, there is a rising demand for golf lessons, with 36% of golfers reporting they took lessons in the past year, this figure jumps to 67% among GolfNow users, indicating a strong desire to improve skills regardless of competitive aspirations.
Golf stocks can be categorized under consumer cyclical stocks for several reasons. First and foremost, golf-related products and services, such as equipment, apparel, and memberships, are generally considered discretionary items. This means that consumers tend to spend more on these products when economic conditions are favorable. As a result, golf stocks exhibit characteristics typical of consumer cyclical stocks, which thrive during economic expansions and often suffer during downturns. Furthermore, the golf industry often reflects broader consumer trends. Increased participation in leisure activities like golf typically indicates a robust economy. Companies involved in the golf industry in one way or another are directly linked to consumer spending patterns in leisure and recreation, which are key aspects of the consumer cyclical sector. During economic downturns, consumers may prioritize essential spending over discretionary activities like golfing, leading to a decline in revenue for these companies.
On October 23, Jeff DeGraaf, Chairman and Head of Technical Research at Renaissance Macro, joined ‘Closing Bell’ on CNBC to discuss market seasonality and why he thinks it’s a good time for strong returns. He believes that seasonals have set up a nice cyclical trade from now through 2025. Jeff DeGraaf noted that while there is currently limited internal momentum, this should not be viewed negatively, rather, it could signify a consolidation phase.
He highlighted a unique market condition characterized by overbought conditions in both yields and the dollar, which are currently in a downtrend. Historically, when these conditions contract, it tends to be favorable for cyclical stocks. He emphasized that historically, the end of October marks one of the most bullish weeks for the market’s three-month forward returns. Given this confluence of factors, including overbought conditions and seasonal trends, DeGraaf believes there is potential for a cyclical trade to gain traction through the remainder of the year and into the first half of 2025.
Addressing concerns about yields and the dollar, he acknowledged that there is uncertainty surrounding their future movements, particularly with the upcoming elections. However, he maintained that his quantitative measures indicate negative trends for both yields and the dollar. DeGraaf suggested that while some investors may be recalibrating their expectations regarding these factors, the current overbought conditions are likely to subside as the market moves through the fourth quarter.
His overall insights suggest a cautiously optimistic outlook for cyclical stocks as they navigate current market conditions characterized by overbought indicators and seasonal trends. Golf stocks present a compelling investment opportunity as they align with the broader trends of consumer cyclical stocks, thriving during economic expansions. With increasing participation in leisure activities and projected growth in the golf industry, golf-related companies are well-positioned to benefit from rising consumer spending.
Our Methodology
We sifted through ETFs, online rankings, and internet lists to compile a list of 15 golf stocks with high analysts’ upside potential. We then selected the 8 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
DICK’S Sporting Goods Inc. (NYSE:DKS)
Average Upside Potential: 22.33%
Number of Hedge Fund Holders: 34
DICK’S Sporting Goods Inc. (NYSE:DKS) is the largest sporting goods retailer in the US and offers a range of athletic footwear, apparel, and equipment for various sports, including golf. Its golf offerings include clubs, balls, bags, and accessories from popular brands such as Callaway, TaylorMade, and Titleist. It operates dedicated golf sections within its stores and has expanded its Golf Galaxy brand to include performance centers that feature advanced technologies like TrackMan for custom fittings and lessons.
In the second quarter of fiscal year 2025, the company generated $3.47 billion in sales, a 7.75% increase year-over-year. Same-store sales rose by 4.5%, driven by growth in both average ticket size and transaction volume (7% boost), as well as strong performance in footwear and athletic apparel. There was a 15% increase in e-commerce sales and a focus on profitable private-label products. The company’s strategic partnerships, such as the recent deal with a top athletic brand, and plans for new store openings demonstrate its commitment to future growth.
DICK’S Sporting Goods Inc. (NYSE:DKS) continued to attract and retain athletes, who increasingly chose to shop both in-store and online. The focus on enhancing the omnichannel athlete experience, including innovative store concepts like House of Sport and Field House, contributed significantly to this growth. These stores offer interactive features and strong brand partnerships, creating a unique and engaging shopping experience.
It’s committed to maintaining its market leadership by offering trendy and unique products. The company is also prioritizing employee satisfaction and brand building. These strategies are expected to drive continued growth and long-term success.
Emeth Value Capital made the following comment about DICK’S Sporting Goods, Inc. (NYSE:DKS) in its Q2 2023 investor letter:
“For as often as the phrase “a private equity approach to public markets” is repeated, it is surprising to observe the great divide that exists between even very sophisticated long-term investors in public and private markets. There is perhaps no more well-trodden battleground than that of valuation marks. Public investors, particularly in times of market stress, are quick to express frustration that private equity portfolios are not marked to market. The title of Cliff Asness’ recent opinion piece in Institutional Investor captures the sentiment well, “Why Does Private Equity Get to Play Make-Believe With Prices?”. The level of discontent is surprising for two reasons: first, the difference in methodology is quite easily understood, and second, contrary to public markets gospel, it is evident that liquidity and the discovery of value are in no way synonymous. Indeed, they may be opposing forces more often than not. At the risk of oversimplifying, one can think of private equity marks as single-variable valuations, while public equity marks are dual-variable valuations. Both incorporate the level of earnings in a business, but while multiples are held relatively constant in private equity marks, public market marks also incorporate sentiment in the form of a changing multiple. The problem is that Mr. Market tends to change his opinion quite often. Consider the case of one of our former portfolio companies, DICK’S Sporting Goods, Inc. (NYSE:DKS)…” (Click here to read the full text)
Overall, DKS ranks 2nd on our list of the 8 best golf stocks to invest in according to hedge funds. While we acknowledge the growth potential of DKS, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DKS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
