Acushnet Holdings (GOLF), owner of household golf brands such as Titleist, FootJoy, and Pinnacle, has surged in recent months. Amid this pandemic, investors have been pouring cash into GOLF with the pent-up US population filling the links as soon as they opened across the US. I think it may be time to pull some profits off the table as this stock surges past most analysts' price targets. Despite the stock's optimistic investors, analysts have been pulling down their earnings estimates for the next few years, pushing this stock down to a Zacks Rank #4 (Sell).
Acushnet had already been experiencing declines in both its top and bottom-lines in recent quarters, and analysts are projecting that its already paper-thin margins are going to flip negative in 2020 and toe the line of profitability in 2021.
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This pandemic may provide the golfing industry with a marginal uptick as people are looking for an outdoor outlet. Golf allows players to socialize, exercise, and enjoy the warm weather at a socially safe distance. Still, I do not think these shares deserve to be trading at all-time highs. The risk/reward at this level is not ideal, in my opinion, and a pullback in share price may be right on the horizon.
The biggest issue with this hyped up GOLF trade for me is that at the end of the day, it's a retail business, and consumer discretionary spending is substantially hampered. There have been more than 40 million unemployment claims since the pandemic began, and I cannot see a short-term uptick in Acushnet's demand sustaining. It will be difficult for consumers to justify spending money on golf equipment and appear when their job outlook is incredibly uncertain.
The enterprise balance sheet is nothing of a fortress with only $56 million in cash and $466 million in current liabilities. Acushnet does not have incredibly large cash-flows to sustain its obligations, and the business will likely be forced to dip heavily into its $400 million lines of revolving credit.
I would not be looking to buy this retail business at its all-time high amid the height of the retail apocalypse. If you are holding GOLF, I may think about pulling profits.
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