Adams Golf (ADGF) Set for More Loft?

by The Graham Investor on August 27, 2009

Adams Golf, a small manufacturer of golf clubs based in Plano, TX, has been regular on the Graham screen for a few months. The stock is just under $3, having fallen from a high of just over $10 in 2008.

Adams is not in the same league as Callaway, Nike and Titleist and as such I thought they would need a catalyst to start them moving back up. That came along in July at Turnberry where 59 year old Tom Watson – a five-time winner of the event – came within two putts of winning his sixth Open Championship.
The evergreen Watson has been playing Adams clubs for several years and is their most storied touring pro, in the same way that Tiger Woods is Nike’s.

Although he lost heartbreakingly in the playoff, Watson’s exploits will certainly have tickled an urge in many older former players to get back into the game. That’s where Adams comes in.

For years Adams has made easy-to-hit hybrid clubs which are irons with bulky heads that look like woods, usually more pronounced in the traditionally hard-to-hit longer irons. In fact, Adams is an undisputed leader in hybrid technology, having pioneered the technology with their original utility club, the “Tight Lies”.

Their Idea line of hybrid irons is proving popular and Adams has just launched a new even easier to hit version, along with a new “Speedline” range of drivers and fairway woods which are designed aerodynamically in order to cut down drag. The combination of Watson’s exploits at The Open Championship and the new Idea and Speedline lines may be just the catalyst needed to get Adams stock back to the $6 range at least.

Adams Q2 Net Sales was 24% lower than for the same period last year, but the stock has dropped more than 75% from its high which appears to be a bit overdone even in the current climate. What might help Adams is that their clubs tend to be somewhat cheaper than the usual go-to brands of Callaway, Nike, etc. but with no loss of playability, or even improved playability. The book value is north of $7, current ratio over 3.5, and the company has a reasonable amout of cash; I couldn’t see any real further downside to the price, so I decided to purchase 1000 shares at $2.89 at the end of July. Lets see how they do.

Good luck with your investing.

TGI

{ 1 comment… read it below or add one }

1 Floris December 11, 2009 at 11:20 am

Hey,

Great to see that you came to the same conclusion. I bought 1500 shares in july as well (at 2,80). I also bought a new adams hybrid which is great.

I dont follow the adagium that I buy stocks with great products, but stocks selling at a steep discount to NCAV with great products builds further confidence.

Regards,

Floris

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