3 Leisure & Recreation Products Stocks to Watch Despite Industry Woes
The Zacks Leisure and Recreation Products industry is hurt by high inflation and a soft global economy. However, the rise in fitness product sales due to increasing awareness about health and fitness and robust boat sales bodes well. The industry participants, which design, market, retail and distribute products for the outdoor and recreation market, are witnessing solid demand. Stocks like Academy Sports and Outdoors, Inc. (ASO – Free Report) , Acushnet Holdings Corp. (GOLF – Free Report) and MasterCraft Boat Holdings, Inc. (MCFT – Free Report) are likely to benefit from the trend mentioned above.
The Zacks Leisure and Recreation Products industry comprises companies that provide amusement and recreational products, swimming pools, marine products, golf courses, boat repair and maintenance services and other ancillary services. The services include indoor and outdoor storage, marine, boat rentals and personal watercraft. Some industry participants manufacture outdoor equipment and apparel for climbing, mountaineering, backpacking and skiing. Some companies also provide connected fitness products and subscriptions for multiple household users. The industry players primarily thrive on overall economic growth, which fuels consumer demand for products. Demand, highly dependent on business cycles, is driven by a healthy labor market, rising wages and growing disposable income.
3 Trends Shaping the Future of the Leisure and Recreation Products Industry
Concerns of Slowing Global Economy & High Inflation: A slowdown in the global economy is likely to hurt the industry. Worries about a global slowdown and a possible recession loom large over the stock market. Inflation in the United States remains the biggest challenge for the economy. For the 12 months ended February, the annual inflation rate was 6% in the United States, following an increase of 6.4% in the previous period. Yet, the numbers are far from the Federal Reserve’s ambitious target of 2% for a strong economy. Inflationary cost increases in labor, compensation, healthcare, freight and rent are leading to higher expenses.
New Boat Sales: New boat sales declined in 2022. Per National Marine Manufacturers Association (NMMA) reports, new powerboat sales were 250,000 units in 2022, down 17% from the same period in 2021. The decline can be primarily attributed to uncertain economic conditions and supply chain turbulence. However, industry experts anticipate boat sales in 2023 to surpass the 2019 level by 2%.
Booming Golf Business: The golf industry has been doing exceptionally well amid the pandemic. Golf is benefiting from an increase in the participation of young people. Technology has also been playing a vital role in reshaping the sport. India and China have become two of the largest emerging golf markets.
Zacks Industry Rank Indicates Dismal Prospects
The Zacks Leisure and Recreation Products industry is grouped within the broader Consumer Discretionary sector.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects.
The Leisure and Recreation Products industry currently carries a Zacks Industry Rank #204, which places it in the bottom 18% of more than 249 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since Dec 31, 2022, the industry’s earnings estimates for 2022 have declined 10.7%.
Before we present a few stocks from the industry that you may want to consider, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Underperform the S&P 500
The Zacks Leisure and Recreation Products industry has underperformed the Zacks S&P 500 composite and its sector over the past year. Stocks in this industry have collectively declined 16.9% over the past year compared with the S&P 500’s fall of 11.4%. The Zacks Consumer Discretionary sector has declined 18.2% in the same time frame.
One-Year Price Performance
On the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing leisure products stocks, the industry trades at 21.58X compared with the S&P 500’s 18.47X and the sector’s 18.68X. Over the past five years, the industry has traded as high as 44.8X and as low as 12.36X, with the median being at 21.04X, as the charts show.
Forward Price To Earnings Ratio Compared With S&P
3 Leisure & Recreation Products Stocks to Watch
MasterCraft Boat: This Vonore, TN-based company, through its subsidiaries, designs, manufactures and markets recreational powerboats. The company is benefiting from robust volumes, higher prices and higher option sales. In 2023, the company anticipates net sales in the range of $620-$640 million.
Shares of this Zacks Rank # 2 company have gained 22.4% in the past year. The Zacks Consensus Estimate for 2023 earnings has been revised upward by 4.3% in the past 60 days.
Price & Consensus: MCFT
Academy Sports and Outdoors: Based in Katy, TX, the company, through its subsidiaries, operates as a sporting goods and outdoor recreational products retailer in the United States. It is benefiting from robust consumer demand across all markets and merchandise divisions, primarily Sports & Recreation. An increase in demand for indoor and outdoor games, bikes, fitness equipment and outdoor cooking bodes well. Partnerships with key national brands, such as Nike, Adidas, Under Armour, Columbia and The North Face, are encouraging.
In the past year, shares of this Zacks Rank #3 (Hold) company have increased 69.1%. The company has an impressive long-term earnings growth rate of 9.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: ASO
Acushnet Holdings: This Fairhaven, MA-based company designs, develops, manufactures, and distributes golf products in the United States, Europe, the Middle East, Africa, Japan, Korea, and internationally. This Zacks Rank #3 company is likely to benefit from an increase in demand for golf balls. The company is gaining from a healthy order backlog, strong at-once demand, lean channel inventories and gradually increasing output levels.
The company’s sales in 2023 are expected to witness growth of 1.5% year over year. The stock has increased 21.3% in the past year.
Price & Consensus: GOLF