Shares of Topgolf Callaway Brands (MODG) landed in the rough when the company reported earnings earlier this month. About 17% of the company's value has been sliced away since the report was issued on May 9. Shares of the golf-focused recreation company recently reached a six-month low.
Topgolf provides players with a high-tech driving range, complete with restaurant and bar. Players aim for targets from a climate-controlled bay and can play alone or in groups. Scores are kept automatically.
Golf equipment manufacturer Callaway Golf and Topgolf International merged in March 2021. There are more than 70 Topgolf locations in the U.S. and the company plans to have 114 locations by 2025.
What is the technical outlook for Topgolf Callaway? Let's go to the charts to find out.
Topgolf Callaway's recent decline has brought it close to a support level from October of last year (black dotted line). The lowest closing price from that period is $17.12, and the lowest intraday print was $16.80.
Source: TradeStation
According to the stock's RSI (Relative Strength Index) indicator, Topgolf Callaway is exiting an oversold condition (green arrow). Buying the stock was the correct move three of the previous five times that this condition occurred (black arrows). Substantial bounces materialized as the stock exited oversold RSI levels.
Of course, this means two of those five opportunities failed (red arrows). How can we minimize any potential losses while trading Topgolf Callaway while maximizing potential gains? Traders should exit the position if the price drops below the Oct. 21, 2022, low, which was $16.80.
How would a recession affect shares of Topgolf Callaway, and will there be a recession in 2023? According to several financial institutions, the risk of a recession is rising.
According to Goldman Sachs chief economist Jan Hatzius, the probability of a recession over the next 12 months is about 35%, up from 25%. Meanwhile, the Global Multi-Asset team at Morgan Stanley recently increased its estimated probability of a recession to 55%.
Because of favorable demographics, Topgolf Callaway is well-positioned to weather a recession. According to a survey by Bench Craft, the average annual household income of golfers is about $125,000. The survey also reports that 91% of golfers are homeowners and 32% own three or more vehicles.
If a recession does occur and unemployment rises, golf enthusiasts may have less to spend on equipment, but on the bright side, they might have more time to play.
I'm buying shares of Topgolf Callaway and using a tight stop below $16.80 to minimize any potential loss.
