We came across a bullish thesis on Topgolf Callaway Brands Corp. (MODG) on Strategic Alpha’s Substack by Strategic Alpha. In this article, we will summarize the bulls’ thesis on MODG. MODG Technologies, Inc. share was trading at $10.7 as of Sept 20th. MODG’s trailing and forward P/E were 16.44 and 24.51 according to Yahoo Finance.
A golfer in the summer sun taking a swing on the green of a pristine golf course.
Topgolf Callaway Brands Corp. (MODG) provides a fun, social experience that doesn’t need people to have golf knowledge to have a good time. MODG could be a good buy as it has fallen from its all-time high in 2021 and is expected to get a significant turnaround.
MODG generated $1.8 Billion from its core segment in 2024 from its 100+ venues that it plans to grow to 250 locations. While Callaway’s core golf equipment business steadily generated over $1.3 billion of revenue annually as the top brand in golf clubs and second in golf balls its Active Lifestyle segment did not perform as well as its equipment business as Jack Wolfskin faced challenges although the new leadership aims to revitalize its prospects. Thus recent developments such as the announcement of a major restructuring aimed at separating its Topgolf business from its golf equipment and activewear segments suggest a path for recovery.
The company plans to separate these segments as it could unlock significant shareholder value as the market has undervalued MODG, trading at under 9.41x projected 2025 EBITDA. A sum-of-the-parts analysis suggests a valuation of $17.94 per share (potential 95% upside) while even without a separation, the stock could reach $13.15 (upside of 43%) if market conditions improve. It is expected that Callaway’s golf equipment division could get a valuation closer to 11x EBITDA, especially given its strong competitive position against Acushnet’s Titleist, which trades at a higher multiple suggesting substantial upside potential for Callaway’s segments if assessed independently.
Even though the company is beginning to improve and better financial performance is expected in the coming quarters there is a potential for strategic actions like a spin-off or sale due to weak performance at Jack Wolfskin pulling it down as a whole, thus MODG is in a compelling special situation for investors seeking undervalued opportunities.
Topgolf Callaway Brands Corp. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 17 hedge fund portfolios held MODG at the end of the second quarter which was 21 in the previous quarter. While we acknowledge the risk and potential of MODG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MODG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.