The Loop

Callaway stock responds to criticisms . . . with a rally

May 27, 2014

If you follow the markets and golf, you know there have been a lot of gloomy reports on golf equipment sales lately. The latest to cross my screen came from the Financial Times and the blog Seeking Alpha.

Both were specifically taking on Callaway Golf Co.'s stock (NYSE: ELY), which has had a tough year so far. Under the headline "Golf: Bunker Mentality," the FT's popular Lex column concludes that Callaway's estimates of 2 to 4 percent industry growth this year are probably unrealistic. Seeking Alpha described Callaway as "concentrated in the worst possible space and with financial risk."

Investors responded by … buying shares. Callaway's stock is up 7 percent since the Seeking Alpha report and climbed 4 percent today, following the FT's report on Friday. U.S. markets were closed Monday for Memorial Day.


My point isn't that ELY is a great buy at $8.30 or even $14 (that's the "target price" assigned by analysts at KeyCorp last month). It's just that investors ought to keep things in perspective.

Golf is surely going through difficult patch, in the marketplace of public opinion if not in real life. It's tough out there. We're still emerging from one of the most difficult economic downturns in U.S. history. But is the sky actually falling? Should everyone run fleeing from the golf business before it's too late? I'm going to say no.

On a related note: Here's a Motley Fool column about Dick's Sporting Goods (NYSE: DKS), a company whose stock got hit hard last week thanks in part to slowing golf-equipment sales. TMF's conclusion: The sky is not falling there, either.

Weakness in hunting and golf equipment, two main product categories, "overshadowed a few really good things in the company's report," it says. These include growth in athletic apparel, footwear and team sports categories, e-commerce, and new store openings.