3 Leisure & Recreation Products Stocks to Watch Amid Industry Woes
The Zacks Leisure and Recreation Products industry faces challenges due to elevated inflation and a sluggish global economy. Nevertheless, there is a positive trend in the sales of fitness products, driven by growing health and fitness awareness and strong boat sales. 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, Acushnet Holdings Corp. GOLF and Vista Outdoor Inc. VSTO are likely to benefit from the trend mentioned above.
Industry Description
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. A few 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. The 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. Inflation in the United States is the biggest challenge for the economy. Inflation in the United States rose for the first time in July after 12 straight months of decline. The Consumer Price Index rose 3.2% year over year, up from an annual increase of 3% in June. The metric was the lowest rate over two years. 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 lead 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 was primarily caused by uncertain economic conditions and supply chain turbulence. However, industry experts anticipate boat sales in 2023 to surpass the 2019 level by 2%. Robust demand for recreational boating will likely drive the industry’s growth in 2023.
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 most significant 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 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 #224, which places it in the bottom 11% of more than 252 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 results from the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, analysts are seemingly losing confidence in this group’s earnings growth potential. Since Jan 31, 2023, the industry's earnings estimates for 2022 have declined 24.8%.
Before we present a few stocks from the industry that you may want to hold, let’s 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 but outperformed its sector over the past year. Stocks in this industry have collectively decreased 3.9% over the past year compared with the S&P 500’s gain of 8.7%. The Zacks Consumer Discretionary sector has risen 0.7% in the same time frame.
One-Year Price Performance
Valuation
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 20.91X compared with the S&P 500’s 19.19X and the sector’s 16.7X. Over the past five years, the industry has traded as high as 44.86X and as low as 12.36X, with the median being at 22.28X, as the charts show.
Forward Price to Earnings Ratio Compared With S&P
3 Leisure & Recreation Products Stocks to Watch
Vista Outdoor: This Anoka, MN-based company designs, manufactures and markets several consumer products in the outdoor sports and recreation markets in the United States and internationally. This Zacks Rank #2 (Buy) company benefits from increased outdoor activity and shooting sports participation.
Shares of the company have increased 5.1% in the past six months. The Zacks Consensus Estimate for 2023 earnings has remained stable over the past seven days.
Price & Consensus: VSTO
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 benefits 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 vital 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 company have increased 0.7%. The company has an impressive long-term earnings growth rate of 12.3%. 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 and Korea. This Zacks Rank #3 company will likely benefit from increased demand for golf balls. The company gains from a healthy order backlog, strong at-once demand, lean channel inventories and gradually increasing output levels.
The company’s sales and earnings in 2023 are expected to witness growth of 5.4% and 5.5% year over year, respectively. The stock has increased 12.5% in the past year.
Price & Consensus: GOLF
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Academy Sports and Outdoors, Inc. (ASO) : Free Stock Analysis Report
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