Will This Penny Stock Land On The Green Or Hit The Rough In The Golf Market?

One sector that has performed well during the COVID-19 pandemic and reopening atmosphere is golf. The outdoor activity can be enjoyed with social distancing and has seen demand at its highest levels since 1997.

Callaway Golf ELY, which owns the indoor golf entertainment brand Topgolf, reported strong quarterly earnings and saw shares trade higher. TaylorMade was recently sold at a premium, showing the demand of golf brands.

The strength of golf could be good for a penny stock that has access to the outdoor game and indoor entertainment sector similar to Topgolf.

About Drive Shack: Operating with an indoor golf entertainment segment called Drive Shack and a legacy outdoor golf course business called American Golf, Drive Shack Inc DS covers both the indoor and outdoor portions of the golf industry.

The company owns private and public golf courses and also operates as a manager for courses owned by others, collecting management revenue along the way.

Related Link: Did Callaway Golf Sink A Birdie By Buying Topgolf At A 50% Discount To IPO Price? 

Growth Ahead: Drive Shack plans to open more indoor golf entertainment venues, which could help the company close the gap in valuation to rival TopGolf. Callaway Golf valued Topgolf at $2.5 billion last year when it acquired the company.

The company has four indoor Drive Shack venues and several set to open in the pipeline, with plans to open 22 more Drive Shack indoor locations by the end of 2022.

One of the items that Drive Shack is using for its future growth is an indoor high-tech mini-golf entertainment experience called Puttery. After seeing the growth of indoor golf brands like Topgolf and Drive Shack, the company could have the next winner.

The indoor mini-golf venues will feature food and drinks, which could boost margins and could also offer leagues and other events to drive attendance.

The third Puttery will open in Washington D.C. near the home of professional sports teams like the Washington Capitals, Washington Wizards and Washington Mystic.

One highlight of the Puttery expansion is the venues cost $7 million to $11 million to develop and are estimated to have that much revenue annually. A Drive Shack location is estimated to cost $25 million to $40 million to develop and has annual estimated revenue of $15 million to $25 million.

Drive Shack partnered on Puttery with Rory McIlroy, who will also invest in the concept. Drive Shack plans on opening five Puttery locations in 2021 and 10 in 2022.

Financials: Drive Shack reported first-quarter revenue of $61.1 million, which was flat compared to the prior year. The company reported a 47% improvement in its operating loss and reported positive adjusted EBITDA of $2.7 million in the first quarter.

“We are extremely pleased with our first quarter progress as our results demonstrate impressive momentum in the golf and entertainment sector with nearly a full recovery from the walk-in sales side of our business,” the company said.

The company’s indoor Drive Shack venues had revenue of $8.2 million, down $1.9 million from last year’s first quarter due to lower event revenue and local restrictions. The company had four Drive Shack venues in operation. Walk-in revenue for the first quarter at the venues was 96% of last year’s first-quarter levels, which was the highest since the start of the pandemic.

First-quarter revenue for the American Golf segment was $52.9 million, up $1.9 million from last year’s first quarter. The total included $13.8 million in revenue from managed golf courses. Membership revenue was up 30% year-over-year at owned private courses and up 46% year-over-year at the company’s 30 public golf courses.

Price Action: Drive Shack shares have traded between $1.00 and $3.94 over the last 52-weeks. The stock is trading at $2.58 at the time of writing. The company has a market cap of $314 million.