ESCALADE INC (ESCA) stock intrinsic value fair value estimate & owner earnings analysis

Escalade makes and sells recreational sporting goods: Bear Archery, Gold Tip and Trophy Ridge archery, STIGA table tennis (under an exclusive North American license), Onix pickleball, Goalrilla and Goalsetter basketball systems, Brunswick billiards, Lifeline fitness, Woodplay playground sets, and a range of game-room products. About 95% of sales are in the United States, sold through big-box, sporting goods and online retailers. Two customers made up 19% and 11% of 2025 sales. The company has grown for decades by buying small brands and running them through its existing manufacturing and distribution, and it also imports many products from Asia. How we measure earnings. We start with cash from operations and remove swings in receivables, inventory, prepaids and payables, because inventory was built up during the 2020-2022 demand surge and then sold down in 2023-2025 (cash from operations was $48.3 million in 2023 and $1.1 million in 2021, neither of which is repeatable). We then subtract stock compensation and the portion of capital spending needed to keep the business running, which is essentially all of it at about $2 to $3 million a year. This leaves owner earnings of $0.93, $1.02 and $1.48 per diluted share for 2023, 2024 and 2025. The 2025 figure is 45% above 2024. We do not carry that jump forward: it includes a $3.0 million non-cash deferred tax add-back that may not repeat, and revenue fell 4.5% in each of 2024 and 2025 (to $240.2 million, from $313.8 million in 2022). Intangible amortization is modest, about $2.3 million a year, and we hold the earnings stream flat rather than growing it, so we are not treating those brand values as permanent growth engines. Because the company borrows, we value the business before its lenders and then subtract debt. Adding back the cash interest paid gives business cash flow per share of $1.31, $1.17 and $1.54 for 2023, 2024 and 2025. Our starting point is $1.31 per share, the median of 2023-2025, roughly $18 million a year. We use this window rather than 2020-2022 because the pandemic-era sales peak ($274 to $314 million) has reversed, and rather than a longer history because the business now carries larger acquired brands (Brunswick Billiards in 2022). Growth check: owner earnings grew 45% in 2025, and we assume 0% growth in year 1, below that rate, so no reversal needs to be explained. All cases discount at 6%. Debt. At June 30, 2026 the company had $14.9 million of borrowings and $16.4 million of cash, a net cash position of about $1.5 million, or $0.11 per share. The term loan carries a fixed 2.97% rate and, together with the $60 million revolving credit line (undrawn at year-end 2025, $56.7 million available at June 30, 2026, per the company's second-quarter release), matures on January 21, 2027, so it must be refinanced this winter. With net cash, refinancing at a higher rate is a small cost that we did not adjust for. The same net cash of $0.11 per share is added in every case. Bear case: $9.37 per share. The business is worth $9.26 per share (about $129 million), the company owes nothing net, and the difference is the $0.11 of net cash. The story is that tariffs on China-sourced goods (disclosed in the risk factors, and the trigger for a 2025 impairment review) and weak consumer demand keep pressuring margins, and one of the two largest customers reduces orders. Business cash flow falls to $1.10 in year 1, $0.90 in year 2 and $0.75 from year 3 through year 10, which is where the company was in 2018 ($0.82) and 2019 ($0.69) before the pandemic surge. After year 10 it declines 6% a year. No acquisition benefit is credited. Base case: $16.77 per share. The business is worth $16.66 per share (about $232 million), net cash adds $0.11. Business cash flow stays flat at $1.31 per share for ten years. What supports it: the earnings have stayed between $0.67 and $1.90 per share of owner earnings for ten years including through the pandemic reversal, the brands have been held for decades, and the STIGA license is exclusive for North America. After year 10 we let it decline 4% a year, because no contract or process we can point to sustains it beyond that. We do not credit growth from new acquisitions or from a demand recovery, even though the company has made acquisitions nearly every year (Gold Tip in September 2025 for about $1.5 million of trademarks, AllCornhole in December 2025), because the recent record is of shrinking sales. Bull case: $24.99 per share. The business is worth $24.88 per share (about $346 million), net cash adds $0.11. Business cash flow starts at $1.54 (the 2025 level, already achieved despite tariff costs) and grows 2% a year for years 2 to 10, reaching about $1.84, and then declines 2% a year. The 2% comes from the company's acquisition-led sales growth of about 2.6% a year from 2014 to 2019, funded from its own cash in small purchases. It is set below that pace, and we take it only because Gold Tip and AllCornhole have already been bought and the first-half 2026 results are running above 2025. What we tested. The base case needs earnings to hold at the 2023-2025 median while sales are falling. First-half 2026 sales rose 3.3% to $113.5 million (second quarter up 6.2%, gross margin up 1.5 points to 26.2%), and operating income was $17.8 million. That figure includes a one-time $9.9 million credit for recovered tariff costs from prior quarters; excluding it, operating income was about $7.9 million against $6.3 million a year earlier, so underlying results are running above the level the base case needs. Inventory fell from $76.0 million to $68.5 million during 2025 and was $71.2 million at June 30, 2026, so we see no unsold stock that would force write-downs. We left the tariff credit out of the earnings level entirely. Change since our last analysis (August 2026, $5.44 bear, $11.76 base, $18.50 bull). The values are higher mainly because we now discount every company at a flat 6% instead of 11% to 12%, and because the earnings level is built before lender payments, with debt handled separately (which is close to nothing here). The earnings level itself is similar, and our starting point is lower than the previous $15.0 million a year. We did not raise the cases for the tariff recovery. What would make this wrong: sales continuing to fall at 4% to 5% a year with margins under pressure would move the results toward the bear case; the loss of one of the two large customers would do the same; a larger or repeated tariff shock would hurt earnings again. Conversely, sustained sales growth and margin gains would move results toward the bull case.