Can Callaway Stock Keep Hitting Greens?

Callaway options are affordably priced at the moment

Managing Editor
Feb 23, 2021 at 9:45 AM
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Callaway Golf Company (NYSE:ELY) -- one of our Top Picks in 2021 -- is quietly making moves away from becoming a niche brand. The company announced a $2 billion merger agreement with TopGolf this past October, adding a broader, more inclusive entertainment element to its golf empire. As the game of golf grows in popularity, Callaway is poised to carve out a bigger stake in the retail sector.

One of the beauties of golf is that its one of the most socially distant activities to do during a pandemic. As a result, Callaway stock has seen strong growth the last 12 months, up 45.7% year-over-year. And while ELY is down 5.4% in February, its 50-day moving average has stepped up as support. 

ELY Stock Chart

Short sellers are hopping in their golf carts and heading home. Short interest is down 3.5% in the two most recent reporting periods, yet the 16.18 million shares sold short accounts for a healthy 18.7% of ELY's total available float. At the stock's average pace of trading, it would take shorts over eight days to buy back their bearish bets; an ample amount of buying power that can unwind and keep the wind at ELY's back.

With earnings in the rear view, options are affordably priced amid a volatility crush. This is per the stock's Schaeffer's Volatility Index (SVI) of 51%, which sits in the 6th percentile of readings from the past year. This implies that options players are currently pricing in relatively low volatility expectations.

Plus, ELY's Schaeffer's Volatility Scorecard (SVS) ranks at 80 out of 100, meaning the security has tended to exceed these expectations during the past year -- a boon for premium buyers.

The growth Callaway stock has shown in the last 12 months is impressive considering the financial setbacks. In 2020 Callaway’s revenues fell by more than $100 million. However, between 2017 and 2019 Callaway added nearly $700 million to their top line, equating to 60% growth. The biggest issue for ELY is the $126.9 million in net losses it took this past year. Nonetheless, Callaway will likely recover quickly and begin seeing accelerated growth with the help of its new acquisition. The addition of TopGolf will help the ELY expand its total addressable market, which should lead to long-term growth for Callaway stock.

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