ELY: Callaway Golf Company

Date: 9 March 2009
Price: $5.81
P/E: 5.59
FP/E: 6.6
P/B: 0.6
Yield: 4.8%
Debt/Eq: 0

Introduction
The ratios look pretty good. It's cheap based on earnings and book value. Yield is fairly good, and there's no debt.

Company Description
Callaway makes and sells various golfing equipment - clubs, balls, clothing etc - and have a number of well known brands.

Past 10 years
The results look patchy. There's steady sales growth over the whole period. The past 4 years have seen good earnings growth, but it seems that this is mostly because they hit a bad patch around 2004/05 which they have gradually recovered from... and have now returned to the levels they saw in the early years of the millennium. Cash flow is overall positive, but varies from year to year. The book value has been fairly static over the last 10 years - again moving up and down a bit. They seem to have been consistent with their dividend payouts, which is good.

The company has historically been valued on a high multiple of its earnings - with a P/E above 20 for much of the time - so that's encouraging given the current P/E.

Pros
The business is simple. Current trend is for increased earnings. Valuation is cheap. No debt. Has been highly valued in the past - currently at lowest price of last 10 years.

Cons
The financial history isn't giving me a warm fuzzy feeling. The balance sheet is sound, but I don't get the feeling that the company is growing in value over time. Having said that, if it stagnates, but continues to pay out 4.8% in dividends then that's a lot better than money in the bank right now.

Conclusion
Tentative yes? I'd buy these as part of my portfolio, but they'd probably get a relatively small chunk of money.