NASDAQ:SPGC
READ THE FULL SPGC RESEARCH REPORT
On August 5, 2024, Sacks Parente Golf (NASDAQ:SPGC)announced financial results for the 2nd quarter of 2024 which showed a substantial increase in revenues compared to the prior year period and the 1st quarter of 2024. Total revenues were $813,000 which increased 132% from $350,000 in the 1st quarter of 2024. Newton shaft products increased 123.4% sequentially to $648,000 and Putter products increased 175% sequentially to $165,000. Newton shafts now represent approximately 80% of total revenues. The company experienced strong international growth in both shafts and putters.
Gross margins increased to 60.1% in the 2nd quarter compared to 31.9% in the prior year period. Newton shaft gross margins are higher than putter products. We estimate Newton shaft gross margins are approximately 70% and putter gross margins are 50%.
Operating loss was ($1,202,000) and the net loss was ($1,155,000), or ($0.79) per diluted share. Operating cash flow in the 1st half of 2024 was a use of cash of ($2,341,000) and capital expenditures were ($188,000).
Cash and equivalents were $2.8 million as of June 30, 2024 and the company has no outstanding debt. Working capital at the end of the 2nd quarter was $3.1 million. On August 20th, the company filed an S-3 which describes a shelf registration in which the company can raise up to $25,000,000 in proceeds through common stock, preferred stock, debt securities, warrants, rights, or units. Other potential sources of capital going forward include Reg A offerings, PIPE transactions, and At-The-Market (ATM) equity offerings.
Business Highlights
➢ The company received a significant increase in orders from Club Champion during the 2nd quarter of 2024. Club Champion is a global golf retailer and club fitting chain with 126 locations.
➢ Introduced a Weekly Driver Performance Pool program for players on the PGA TOUR Champions that use the company’s Newton Motion driver shafts in tournaments (See below for more info).
➢ The company expanded the Newton Golf Shaft division with the addition of the Newton Motion Fairway Wood shaft to complement the initial Newton Motion Driver shaft. These include #3, #5, and #7 fairway woods.
➢ Newton Golf Shafts was named the Official Driver Shaft of the 2024 World Long Drive Championship. This event occurred August 8-11, 2024 in Atlanta, Georgia.
Reverse Stock Split
On July 24th, 2024, the company announced that its board of directors had approved a 1-for-10 reverse stock split of the common stock. The reverse stock split became effective on July 30, 2024. The reverse stock split was intended to increase the price of the common stock to allow the company to demonstrate compliance with the $1.00 minimum bid price requirement for continued listing on Nasdaq.
Valuation and Estimates
Our primary valuation tool utilizes a Discounted Cash Flow process. Based on growth and profitability projections and the potential for possible dilution from a shelf registration, our DCF-based valuation target is approximately $12.00 per share. Our target price may be conservative as it utilizes a high discount rate of 15.0% due to the unpredictability of earnings, higher prevailing interest rates, and the timeline of reaching net profitability on an annual basis.
Our 2024 full year revenue estimate is $2.98 million and our 2024 EPS estimate is a loss of ($2.96). For 2025, our revenue estimate is $5.2 million and our EPS estimate is ($1.78). We expect the company to reach net profitability in 2026.
The company’s closest competitor Acushnet (NYSE:GOLF), trades at a price/sales ratio of approximately 1.66x. Applying that multiple to SPGC’s 2027 revenue estimate of $10.7 million and discounted back creates a value of approximately $10.00, which is substantially greater than the current stock price. In 2021, TaylorMade was acquired for $1.7 billion which equates to a price/sales ratio at the time of 1.7x.
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