NASDAQ:SPGC
READ THE FULL SPGC RESEARCH REPORT
On November 14, 2024, Sacks Parente (NASDAQ:SPGC) announced financial results for the 3rd quarter of 2024 which showed a significant increase in revenues compared to the prior year period as well as the 2nd quarter of 2024. Total revenues were $1,211,000 which increased 49.0% from $813,000 in the 2nd quarter of 2024 and over 10 times from revenue generated in the 3rd quarter of 2023.
Newton shaft products increased 82.4% sequentially to $1,182,000 and Putter product revenues were only $29,000 during the quarter due to a pullback in ad spend and possible adverse effects of political election advertising. Newton shafts represented 96.7% of total revenues during the 3rd quarter. The company expects strong international growth to occur starting in the 4th quarter and into 2025.
Gross margins increased to 66.5% in the 3rd quarter compared to 41.0% in the prior year period. Newton shaft gross margins are typically higher than putter products. We estimate Newton shaft gross margins are approximately 70% and putter gross margins are closer to 50%.
Operating loss was ($1,090,000) and the net loss was ($1,060,000), or ($0.73) per diluted share. Operating cash flow in the first nine months of 2024 was a use of cash of ($3,431,000) and capital expenditures were $463,000.
Cash and equivalents were $1,313,000 as of September 30, 2024 and the company has no outstanding debt. Working capital at the end of the 3rd quarter was $1,762,000. 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.
Public Offering
Subsequent to the end of the 3rd quarter in October, the company sold 366,000 shares of common stock for aggregate gross proceeds of approximately $732,000. The company intends to use the net proceeds from this offering for general corporate and working capital needs. In addition, when considering over-allotment purchases, this would essentially exhaust the maximum amount the company can currently raise under its shelf registration statement.
Business Highlights
- The company received a significant increase in orders from Club Champion during the 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 Motion Shafts was named the Official Driver Shaft of the 2024 World Long Drive Championship. This event occurred August 8-11, 2024 in Atlanta, Georgia.
Valuation and Estimates
Our primary valuation tool utilizes a Discounted Cash Flow process. Based on growth and profitability projections, 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 $3.4 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 ($1.76). We expect the company to reach cash flow breakeven 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 $10.0 million and discounted back creates a stock value of approximately $9.00, 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.
The company’s Enterprise Value is approximately $1.7 million. With revenue expectations of $3.4 million in 2024 and over $5.0 million in 2025, the current EV appears to be irrational and more reflective of the ongoing microcap stock malaise as opposed to company fundamentals.
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