Drive Shack Crushes With New Concept

Puttery Expansion To Push Drive Shack Higher 

The pandemic put a tailwind into the golfing industry and Drive Shack NYSE: DS but that’s not what has us excited now. The company recently launched a new concept called Puttery that we see driving this company to new highs. The Puttery concept is miniature golf for adults to include adult beverages and food. In our view, it is a concept long overdue and one we see taking hold in markets around the country. With the company’s core business back to growth and this concept in play, we think now is a great time to start nibbling on this stock if you aren’t already. 

"Our first Puttery venue debuted in our home market on September 3rd in The Colony, Texas, one of the most exciting entertainment districts in North Texas. Guests are responding favorably to our inaugural Puttery and the feedback on their experience remains overwhelmingly positive... We look forward to opening additional Puttery venues in the coming months, including our Charlotte location which is planned to open later this quarter,” said President and CEO Hana Khouri.

Drive Shack Hits The Green In Q3

Drive Shack had a good quarter even without the $0.80 million brought in by the Puttery. The company reported $76.36 million in consolidated revenue to produce the highest revenue in three years and beat the consensus estimate by 300 basis points. Strength was seen in both the gold and entertainment segments but growth in entertainment was much stronger due to the comps. The golf segment grew by 8.3% on top of last year’s gains while the entertainment segment grew a whopping 82% on top of last year’s pandemically-restricted quarter. 

Moving down to the earnings, the company experienced a tighter margin than expected due to reopening costs, normalized operations, and opening Puttery. This produced a GAAP loss of $0.11 per share but there is good news. When adjusted for one-time costs the company produced the 5th straight quarter of adjusted EBITDA and is on track to continue operating profitably. 

The Analysts See A Winner In Drive Shack 

There are only two analysts’ ratings worth mentioning but they are both bullish. The rest are more than 12 months old and don’t reflect current conditions. The two current ratings see the stock trading near the $5 level and the Marketbeat.com consensus which is more than 100% upside from current price action. The most recent shout-out came from BTIG which finds the Puttery concept alluring. In their view, each location could be worth $2 to $3 million in EBITDA with revenues in the range of $100 million annually. That makes each location worth 130 basis points of revenue growth relative to Q3 levels. It is our estimation the company could eventually open 100 to 200 locations nationally within the next five to ten years. 

The Technical Outlook: Drive Shack Winds Up For Next Move

Shares of Drive Shack have been range-bound for the last few quarters and that has not changed. Price action is pulling back in the wake of the Q3 report and looks like they may reach the bottom of the range very soon. Regardless, shares of Drive Shack are trading near long-term lows and above a key support level that we see holding firm. A move down to $2.50 or lower is likely to spark a round of buying that will eventually lead to higher prices and possibly a move up to the $5 level.