ESCALADE, INCORPORATED

The thesis

1. Escalade earns less than its reported numbers show, and the stock is still priced below its peers. The company booked $11.5M of IEEPA tariff refunds in operating income in the nine months to 30 September 2026, which is 36.3% of operating income for the last twelve months. Our base EBITDA excludes that recovery, so we use $25.3M for the twelve months, not the $36.8M reported. On that base Escalade trades at 10.7x, against 7.3x on reported EBITDA and a peer median of 12.7x.
2. Sales have stopped falling, and gross margin has moved up. Net sales fell 4.6% in FY2024 and 4.5% in FY2025, then rose 0.8% in the nine months to 30 September 2026. Gross margin was 28.8% over the nine months against 26.6% a year earlier. Management credits better fixed-cost absorption and a shift toward dealer and direct-to-consumer sales. We hold sales flat after FY2026E, because management has given no numeric guidance for 2027.
3. The balance sheet holds net cash, but all of the debt falls due on 21 January 2027. Escalade had $13.1M of term loan debt and $24.5M of cash at 30 September 2026, so net cash was $11.4M. The term loan and the revolver both mature on 21 January 2027, and management expects cash from 2026 and Q1 2027 operations to repay the loan. We have found no renewal plan for the $60.0M revolver in the filings we reviewed.
4. Free cash flow and a discounted cash flow value support the target. Free cash flow was $25.5M in the nine months, helped by tariff refund cash, and we model $17.0M in FY2027E, a yield of 6.1% on market value. A discounted cash flow at a 7.4% WACC gives $24.40 a share, 4.0% below our target. Dividends took $6.3M in the nine months.