Danger Zone: Callaway Golf
David Trainer | Jul 10, 2013 04:57AM ET
Callaway Golf (ELY) is in the Danger Zone this week. ELY is priced for significant profit growth despite declining revenues, increased pressure from competitors, and limited growth potential in the golf equipment industry. Investors should be wary of stocks like ELY where the best-case scenario is already priced in.
Declining Revenues and Profits
Callaway has seen significant decline in its revenues and after tax profit (declining for several years . With TaylorMade dominating the market place and Callaway’s advertising efforts failing to boost its top line, one would think that increased investment in new products would be the necessary step for Callaway to regain some traction. Instead, Callaway decreased its capital expenditure by 34% last year and 74% since 2008. Without more investment in new products, it is difficult to see how Calloway could generate the growth expectations in their stock price. It will take more than cost cutting and increased consumer spending for Callaway to have any chance of rewarding investors.
Sam McBride and Greg Slaughter contributed to this report
Disclosure: David Trainer, Sam McBride, and Greg Slaughter receive no compensation to write about any specific stock, sector, or theme.
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