Callaway (NYSE:ELY), one of the leading golf brands worldwide, released a fantastic first-quarter earnings report last week, sending shares of the stock up with it. Backed by the surging U.S. golf market, sales and profits from all of Callaway's divisions were up substantially in Q1. The company also recently closed on its $2.66 billion Topgolf acquisition, bringing a stellar entertainment brand and technology company under its umbrella.

Callaway knocked it out of the park with these Q1 results. But is the stock a buy? Let's take a look.

Callaway's headline numbers looked solid in Q1. Revenue came in at $652 million, up 47% year over year, and operating income was $76 million versus $40.7 million in 2020. This growth was driven by a few things.

For one, golf equipment sales increased 29% to $377 million in the quarter, with golf ball sales up 50%. According to third-party source Golf Datatech, U.S. golf retail sales were up 49% in Q1 2021 versus the same period in 2019, which shows the huge industry tailwind driving Callaway's growth at the moment. Apparel and gear sales also recovered nicely from a tough 2020, growing 21% to $181 million in the quarter.

Lastly, Topgolf contributed $93 million in inorganic sales growth (growth from an acquisition) in Q1. It officially became a part of the Callaway portfolio on March 8, so the $93 million in sales came from only four weeks of operations.

These numbers generally look good (I'll talk more about Topgolf and apparel below), but investors should also track supply chain and inflation risks with Callaway's business. On the conference call, CFO Brian Lynch mentioned an increase in shipping, steel, titanium, and food costs (Topgolf venues have restaurants), which could hurt Callaway's operating margin if it is unable to pass on these rising costs to consumers.

Topgolf, as an in-person entertainment concept, saw a decline in sales and profits in 2020 due to the COVID-19 pandemic. This continued in Q1. However, management stated that with all of its locations officially open and the U.S. (where the majority of Topgolf's current venues are located) slowly getting vaccinated, it expects Topgolf to hit or exceed 80% to 85% of 2019 same-store sales this year.

Since Topgolf venues have a lot of upfront and fixed costs, same-venue sales are an important metric to track as it can indicate an increase or decrease in venue profit margin. Topgolf now has 66 venues open worldwide, with three more planned to open later this year. Investors should look to see if same-store sales can get above 2019 levels sometime within the next few quarters as a sign this business is recovering coming out of the pandemic.

Topgolf also owns Toptracer, a golf shot tracking software that it sells to the PGA Tour and third-party driving ranges. At the end of Q1, Toptracer was installed in more than 10,000 driving bays, with over 1,500 added in the quarter. This is a small but rapidly growing high-margin revenue stream for Callaway, and it is an underappreciated asset that it got with the Topgolf purchase.

Callaway's third business line is apparel. It owns three different brands: TravisMathew, Ogio, and Jack Wolfskin. As you can see from the revenue numbers above, these brands are now a meaningful part of the Callaway business. This quarter, management mentioned that e-commerce sales were up 96% across its apparel lines, with operating income recovering from a loss in Q1 2020 to $20 million in 2021.

Plus, over the next few years, Callaway has the opportunity to cross-sell these apparel items to the tens of millions of consumers who visit Topgolf locations each year.

At a market cap of $5.2 billion, Callaway is optically expensive if you look at its trailing annual sales of $1.8 billion and operating profits of only $113 million. The company also has $777 million in net debt on its balance sheet that will have to be paid back in the coming years.

However, once you consider the great assets Callaway acquired with Topgolf, the growing profitability of its equipment and apparel business, and the potential ending of the COVID-19 pandemic in the U.S., the valuation doesn't look crazy. Taking all these factors into consideration, even with share prices up over 100% in the last 12 months, Callaway stock still looks like a buy here for any investors with a long-term mindset.