Acushnet has had an impressive run over the past six months as its shares have beaten the S&P 500 by 5.4%. The stock now trades at $82.53, marking a 29.8% gain. This run-up might have investors contemplating their next move.
Is now the time to buy Acushnet, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.
Why Do We Think Acushnet Will Underperform?
We’re glad investors have benefited from the price increase, but we don't have much confidence in Acushnet. Here are three reasons you should be careful with GOLF and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Acushnet grew its sales at a 10.7% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Acushnet’s revenue to rise by 1.1%, close to its 10.7% annualized growth for the past five years. This projection is underwhelming and indicates its newer products and services will not accelerate its top-line performance yet.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Acushnet’s ROIC decreased by 2.7 percentage points annually over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Acushnet falls short of our quality standards. With its shares topping the market in recent months, the stock trades at 23.7× forward P/E (or $82.53 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. We’d recommend looking at a top digital advertising platform riding the creator economy.
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