NASDAQ:SPGC
READ THE FULL SPGC RESEARCH REPORT
Sacks Parente Golf (NASDAQ:SPGC) is an advanced technology golf company with a growing portfolio of golf products, including putters, golf shafts, golf grips, and other golf-related products. In order to support its growth opportunities and in-house shaft technologies, in April 2022, the company expanded its manufacturing business to include advanced premium golf shafts by opening a new shaft manufacturing facility in St. Joseph, MO. The company intends to manufacture and assemble substantially all products in the United States as is economically feasible. The company anticipates eventual expansion into golf apparel and other golf-related product lines to enhance its growth. The company’s future expansions may include broadening its offerings through mergers, acquisitions or internal developments of product lines that are complementary to its premium brand. Sacks Parente currently sells its products through the company’s websites, resellers, and distributors in the United States, Japan, and South Korea.
The company owns or licenses multiple utility and design patents in the U.S. and foreign countries relating to its products and product designs. The company also owns U.S. and foreign trademark registrations relating to its products, product designs, manufacturing processes and research and development concepts.
On August 17, 2023, the company closed its initial public offering in which the company sold 3,200,000 shares of common stock at a price of $4.00 per share. The company received total proceeds, net of fees, of $11,594,000. Cash balances as of 3/31/24 stood at $4.1 million.
The company leases approximately 9,000 square feet of manufacturing, assembly, and distribution space in St. Joseph, Missouri (approximately 60 miles from Kansas City, MO). In January 2024, the company relocated its primary golf putting instrument assembly facility from Camarillo, CA to the St. Joseph facility. The company believes this facility has the capacity to produce 160,000 units which would equate to over $40 million in total revenues. The lease on the facility currently expires in December 2025.
Sacks Parente has a growing number of professional golfers and golf luminaries using its products. Recently, the company’s Newton Motion driver shaft was the second most played golf shaft on the PGA TOUR Champions.
The company anticipates rapid multi-year revenue growth primarily from product launches of the company’s Newton shafts and Sacks Parente putters. Primary sources of growth will come from direct-to-consumer channels and Asian markets. The company recently expanded into all 126 Club Champion stores nationwide.
SPG Putters
The company’s putter products include golf putters, shafts, and grips sold under the Sacks Parente brand and are generally made of steel, aluminum, titanium alloys, carbon fiber, tungsten, patented magnesium face plate technologies, and various other materials.
The putter technology has been shown by The Golf Lab, a Canadian golf research and education provider, to improve players’ ability to make putts and improve the feel of the putter head, stroke, face angle at impact, and distance control (see below).
Newton Shafts
On November 20, 2023, the company announced a significant expansion of its product portfolio. The company introduced “Newton,” their latest business division and the company’s first entry into the world of golf club shafts. The Newton Motion driver shaft, the first Newton shaft to debut in the market, is a carbon fiber shaft designed to enhance a golfer’s performance by promoting straighter and longer shots with reduced effort.
Valuation
Our primary valuation tool utilizes a Discounted Cash Flow process. Under the scenario described above, our DCF based valuation target is approximately $3.00 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 $2.8 million and our 2024 EPS estimate is a loss of ($0.23). For 2025, our revenue estimate is $6.9 million and our EPS estimate is ($0.03). 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 1.60x. Applying that multiple to SPGC’s 2027 revenue estimate of $18.5 million and discounted back creates a value of approximately $1.50, which is over 300% 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.
Summary
We believe Sacks Parente is entering a robust growth phase with the potential to generate substantial revenue growth and eventually high levels of free cash flow. The high-performance and innovative line of Sacks Parente putters and Newton shafts may be rare “homerun” product introductions into the golf equipment market. This may be equivalent to the introduction of Big Bertha drivers, 2-ball putters, and cavity-backed irons – all of which dynamically changed the golf industry.
Investors may be getting the rare opportunity to get in on the ground floor of a dynamic sporting goods company that is poised for rapid growth. The company’s current stock price does not likely reflect that potential level of profitable growth going forward and we believe the stock to be significantly undervalued at this time. With the company trading at such a large discount to intrinsic value, a margin of safety also appears to exist at this time.
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