Topgolf Callaway Brands Corp.'s (NYSE:MODG) Shares Leap 26% Yet They're Still Not Telling The Full Story

Topgolf Callaway Brands Corp. (NYSE:MODG) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 48% in the last twelve months.

In spite of the firm bounce in price, it would still be understandable if you think Topgolf Callaway Brands is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.3x, considering almost half the companies in the United States' Leisure industry have P/S ratios above 0.9x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Our free stock report includes 1 warning sign investors should be aware of before investing in Topgolf Callaway Brands. Read for free now.

View our latest analysis for Topgolf Callaway Brands

How Has Topgolf Callaway Brands Performed Recently?

Recent times have been more advantageous for Topgolf Callaway Brands as its revenue hasn't fallen as much as the rest of the industry. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. You'd much rather the company continue improving its revenue if you still believe in the business. In saying that, existing shareholders probably aren't pessimistic about the share price if the company's revenue continues outplaying the industry.

Keen to find out how analysts think Topgolf Callaway Brands' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

Topgolf Callaway Brands' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.1%. Still, the latest three year period has seen an excellent 35% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 1.8% each year as estimated by the ten analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 2.8% each year, which is not materially different.

With this in consideration, we find it intriguing that Topgolf Callaway Brands' P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

Despite Topgolf Callaway Brands' share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've seen that Topgolf Callaway Brands currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Topgolf Callaway Brands that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.