2006-07-06
GGXY
This is the second in my series of stock picks. Please see my caveats for these ideas on my first entry. Suffice it to say these are investments not to be undertaken lightly.
This report is on a company called Golf Galaxy, stock symbol: GGXY. If you are a golfer, you probably have been in or at least know of Golf Galaxy. They are the leading golf specialty retailer that currently operates 61 superstores in 24 states. Their premise is to provide a one-stop shop for anyone interested in golf, from shoes to clubs to lessons. The company was started from some former Best Buy employees, so think of Best Buy for golf nuts. The company is aggressively opening new stores, it should open 14-16 new stores in the next year. This should drive substantial growth for the company as these new stores open and the existing stores mature. I believe that the company will grow sales and earnings by about 25% a year over the next several years as their store base ultimately hits about 250-300 stores nationwide. This is really an opportunity to get in early and profit as the company ramps up over the next five years and earns huge bucks over the next five to ten.
I don’t play much golf, but I really like the demographics of golf. As the U.S. population ages and boomers retire and spend more time at recreational activities, I think the number of rounds of golf played will increase. This will also lead to a larger amount of spending on golf equipment and supplies. I think the management team at GGXY is very good and will capture a huge amount of the market share of the golf business.
If you are familiar with Peter Lynch, then you know about his term “ten-bagger” where a stock goes up so much that it returns ten dollars for every dollar invested. I think that with enough time, GGXY has a reasonable chance of being a ten-bagger.
The stock has been very volatile since its IPO. It has been up, then down, then way up, and now it is back down below the IPO price. It is a fairly small stock, so it does not take much buying or selling to move the price around quite a bit. The sell-off was due to an earnings release that indicated that sales were a little slower than expected (probably $3.00 a gallon gas had something to do with it) and earnings estimates were taken down slightly for the year. In reality, the stock was probably to frothy and now it is just over-sold. It is trading right now as I write this near $12.50 a share.
I do own stock, which I bought at higher stock prices. I intend to add to my holdings to bring my average cost down.
-- rockabillie at 1:18 p.m.