S2E47 Is Topgolf Callaway (MODG) stock a buy?

S2E47 – Is Topgolf Callaway (MODG) stock a buy?

Is Topgolf Callaway (MODG) stock a buy?

In this video, I review Topgolf Callaway stock, to determine if it’s a good buy, sell, or hold. Callaway Golf is has been a leading sports equipment manufacturing company that designs, manufactures, markets, and sells clubs, balls, bags, gloves, and caps to customers all over the world. Recently, Callaway acquired Topgolf which is transforming the company into more of an entertainment and tech company. In this video, I specifically use a 4M checklist. MOS – This is the math part of investing that Tykr does for us. Meaning – This is the business model and how the company makes money. Moat – This is the competitive advantage. Management – This is the experience and review of the CEO.

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Topgolf Callaway stock review video

Topgolf Callaway stock review audio


Key Timecodes

  • 00:27 – MOS/Financials

  • 01:17 – Meaning / Business Model

  • 07:09 – Moat / Competition

  • 07:55 – Management / CEO

  • 09:07 – Conclusion


[00:00:05.110] – Sean
Hey. In this video I’m going to review Callaway. So for you Golf fans out there, you’ll appreciate this review. Some really fun changes to this company we want to pay attention to. So of course, we’re going to do a 4M analysis.  
[00:00:17.010] – Sean
We’ll start with the margin of safety(MOS). That’s the math part that Tykr really does for us. Then we’ll talk about the Meaning Moat and Management. So first off, just to spend a little bit of time on the math parts. When you log in to Tykr, you can see Callaway is a 50 out of 100, which is pretty good.  
[00:00:32.800] – Sean
They also have a margin of safety of 90%. The share price is about 21 and the fair value is really nice upside potential here. Where things get a little bit more exciting is when you go down to the financials. You take a closer look at the revenue. 2020 revenues were 1.5 billion.  
[00:00:49.720] – Sean
It jumped up to 3.1 in 2021. We’ll talk about how that happened in a moment. Net income also really impressive. 2020 net income was negative 126 and it went positive 321,000,000. Really nice jump there.  
[00:01:07.020] – Sean
EPS is very similar. Really made a nice jump from negative 1.3 to positive 1.9%. Where I want to spend a little more time is actually on the meaning of the business. So Callaway changed their name from Callaway to Top Golf. Callaway brands.  
[00:01:24.780] – Sean
Tykr symbol changed from Ely to MODG, which pretty much means modern golf. So the big play here was actually Top Golf. In 2020, Callaway bought Top Golf, which added a significant, as you can see, amount of revenue and profits to this business is actually accounting for 30% of revenue, which is the largest segment. We’re going to talk about that in a second, but I just want to jump over to the site here. This is the top golf site.  
[00:01:55.780] – Sean
It’s been around since 2000, started in Europe and they’ve got about 60 locations around the world. So it doesn’t seem like a lot, but they’re really profitable per location. So what it is and just kind of scrolling through the images here and especially this image here, it’s snowing. It’s a Four Seasons type venue where there can be 50, 60, sometimes more bays where you can rent like an hour slot or more and bring your entire family. Golf is known to be it can have a higher buried entry.  
[00:02:32.460] – Sean
It is an expensive sport, but there’s a big time commitment as well. Like to play 18 holes is like 4 hours. In this case, you can bring the entire family. You can chill out, enjoy yourself, have food and drink. The business is making money off the rental of the base, is making money off the food and drink.  
[00:02:52.230] – Sean
You can also pay for subscriptions, so you can pretty much go as much as you want. You can also pay for lessons, but they have certain games. I was looking into what kind of games you can play normal golf and kind of aiming at targets out into the fields, which can be like about 250 yards long. But I was looking here, you can play like Angry Birds and other fun games that probably kids would be more familiar with, but it’s kind of like real life simulation. There’s touchscreens and a lot of cool tech.  
[00:03:21.150] – Sean
But what it’s doing is this is pretty cool, is that modern golf callaway is really leaning into that is how do we make golf more approachable for everybody in this business? Top Golf is doing exactly that. It’s really impressive business model. And now let’s circle over to the various revenue streams. So, golf clubs, there’s a lot of companies out there that we’ll talk about in a second, but golf clubs make up about 31% of revenue.  
[00:03:48.790] – Sean
Golf balls are 7%, apparel is 15%, gear and accessories about 10%. Other categories, 2%. But Top Golf 32%. It is the highest percentage of the revenue streams. I want to talk about Top Golf just a little bit more and we’ll keep moving on some really interesting facts here.  
[00:04:07.930] – Sean
So Topgolf on its own was targeted to go public in 2020. But because of COVID and you’re closer together around people, essentially the revenues went from 1 billion down to 485. So a bit of a drop. But this worked out for Callaway. They of course, bought the company in 2020 later that year.  
[00:04:30.860] – Sean
But in 2019, over 1 billion golf balls were hit by Top Golf. Also that same year, there were more people that attended Top Golf locations than people who attended NFL football games. Really impressive. And then another point here is they’ve donated over 4150 golf balls and 210 golf clubs to troops overseas, military. And then they actually provide scholarships to children and spouses of fallen or disabled service veterans.  
[00:05:07.350] – Sean
So, really cool business model there, how they’re giving back to the community and also really profitable business knowing that it’s operating all year round and they’re making money not just on renting these bays, but off the food and drink. I’m going to talk about what the news had to say here a little bit too. So right now, like most stocks, it’s a bear market. A lot of stocks are down, but investors Place talks about seven stocks that could see 20% upside when the market starts to take off. One of those being top golf callaway.  
[00:05:39.190] – Sean
Just a list of a few of the others include Fortinet, which I hold in my portfolio. You got conical. Philips Energy Transfer. Simply Goods Food Company, live Nation and Penn Entertainment. Kind of a wide variety there.  
[00:05:53.520] – Sean
But Top Golf callaway is definitely in that mix. This is good to hear. So Top Golf plans to double its annual players from about 28 million to 57 million by 2025. So nice consistent growth plan there, building these facilities. And then it also talks about, although COVID did hurt Top Golf because you’re closer together, the sport itself.  
[00:06:22.150] – Sean
Golf in general has become more popular thanks to COVID, because people needed to social distance, get away from others, get outside. Golf ended up being the perfect activity. And a lot of brands in this space, and we’re going to get to that in a moment. A lot of brands did see a positive impact about more people going out to the golf course and playing. Now that momentum has continued, people are still out there in the course, and now you’re seeing this momentum with Top Golf, more people going to these facilities.  
[00:06:53.290] – Sean
So with the meaning of the business, we got to give another check. They’re looking really strong. Business models, great. Still makes money and all the things that Callaway has made money in the past. But now you add Top Golf to the mix, this is what really separates them from the competition.  
[00:07:08.470] – Sean
So, speaking of the competition, the big players in this space from a public standpoint are Nike and Adidas. They make apparel, different golf gear that golfers are there you’re going to be familiar with. Those are the two big brands. There’s also a lot of private companies. You have.  
[00:07:24.300] – Sean
Taylor made Ping titleist, Cleveland, Cobra and a few others. These brands, all they make golf clubs and golf balls and apparel and all that kind of stuff, which is competitive callaway. But the one thing they don’t have is a Top Golf like revenue stream in the business. So the moat, in this case, there is a definitive moat with Callaway really impressive, that separates them from the competition. It’s a good place to be.  
[00:07:50.220] – Sean
So far, we’ve got all three boxes checked. Margin of safety, meaning, and moat. Let’s jump down to management. This is cool. So oliver chip G Brewer III has served as president and CEO since 2021.  
[00:08:05.520] – Sean
He was actually the director of Top Golf. Now, this is interesting. It wasn’t a Callaway leader or executive that went through the succession plan to take over the CEO role of Top Golf. Callaway, they actually moved Chip to this position as CEO from the company they bought. That doesn’t always happen.  
[00:08:26.890] – Sean
That was really unique. But what this is telling us is they’re really leaning into this modern golf, this new way people are getting involved with the sport. So I can see it’s at 32% of revenue today. I could see over the next few years that percentage increasing in this business model, especially as they build more locations. So I thought that was a really smart play, moving him to that role.  
[00:08:52.090] – Sean
I’m looking here, I would like to look at Glassdoor to see what the ratings are. So the Glass door rating is a 3.8 out of five. It’s close. We like to see a 4.0 or higher. And the CEO rating, this is good news, is 89%.  
[00:09:06.070] – Sean
So far, so good. So overall with this business, we are checking the box with all four M. Now, I have a pretty focused portfolio and tech stocks, and I plan on keeping it that way. Although this is probably the top nontech stock in my book, I really like the business model, you know, the game of golf, seeing that popularity increase, but top golf. That addition, I think was a really smart play for this business.  
[00:09:38.730] – Sean
So this is definitely going on my watch list. I’m going to keep my stocks where they are at today. But for those of you who want to create a little diversification in your portfolio, maybe you’re heavy in tech like me, but want to pick up another non tech stock. This may be a stock to look into. So hopefully this video is helpful.  
[00:09:57.570] – Sean
If there’s another stock you want me to review, go ahead and leave a comment below and I will take a look. See you next time.