Buying Callaway After $1.1 Billion Topgolf Move
As golf giant Callaway sheds Topgolf, shares of the company are finally showing signs of life.
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Callaway Brands has been around since the 1980s. In the 90s, the brand gained notoriety due to the popularity of its Big Bertha driver. The large head and stainless steel construction created a larger sweet spot, making the game easier for casual players.
In 2020, Callaway acquired Topgolf for about $2 billion in an all-stock deal, and rebranded itself as Topgolf Callaway Brands (MODG) . The merger failed to have the desired effect, as shares of Topgolf Callaway have lost about half of their value over the past five years.
Last month, the company sold a 60% stake in Topgolf. The buyer, private equity firm Leonard Green, paid $1.1 billion for the stake. The move essentially gets Callaway out from under its Topgolf investment, allowing it to focus on its core competencies.
Callaway’s Daily Chart Is Turning Positive
Topgolf seemed like a solid idea, essentially gamifying the concept of a driving range to attract a broader audience. Good ideas don’t always pan out, but now that Callaway is distancing itself from Topgolf, shares of the Carlsbad, California company are gaining momentum. Topgolf Callaway Brands, soon to be renamed simply Callaway Brands, has gained 9% over the past month.
Topgolf Callaway’s chart is forming a series of higher lows (HL) and higher highs (HH). This is often how a bullish trend begins. The stock is trading above its 50-day (blue) and 200-day (red) moving averages, both of which are beginning to climb after a period of flatlining.
Callaway’s Weekly Chart Is Also Bullish
Zooming out to the weekly chart, Topgolf Callaway has spent the past 18 months forming a bullish rounded bottom pattern (shaded yellow). That pattern suggests that shares of Topgolf Callaway could reach $16 per share. A move of that size would create a gain of nearly 40%.
The Bottom Line on Topgolf Callaway
One of the biggest complaints I hear from investors is that they can’t find any low-priced stocks with good potential upside. Many stocks have appreciated to the point where investors are forced to either overpay, or miss out completely.
Meanwhile, Callaway’s transition away from Topgolf creates a leaner company, with a greater focus on its areas of previous specialization. We’re opening an initial position in Topgolf Callaway, as the company’s realignment could be creating an opportunity for profit.
At the time of publication, Ponsi was long MODG.
