3 Leisure & Recreation Products Stocks to Watch Amid Industry Woes

·6 min read

The Zacks Leisure and Recreation Products industry is afflicted by concerns regarding the slow U.S. economy. High inflation continues to hurt most industries and leisure and recreational products are no exception. However, the rise in fitness product sales due to increasing awareness about health and fitness among people and robust boat sales bodes well. The industry participants, which design, market, retail and distribute products for the outdoor and recreation market, are witnessing robust demand. Stocks like Academy Sports and Outdoors, Inc. ASO, Acushnet Holdings Corp. GOLF and MasterCraft Boat Holdings, Inc. MCFT 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. 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, which is 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 U.S. Economy: A slowdown in the 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 continues to remain the biggest challenge for the economy. The Fed hinted that it would slow down the pace of the interest rate rise with more evidence of easing inflation. However, it continues to support increasing interest rates in 2023.  The consumer price index (CPI) for November 2022 came in at 7.1% after record highs of 8.2% in September and 8.3% in August. Yet, the numbers are far from the Federal Reserve’s ambitious target of 2% for a strong economy. Inflationary cost increases in the areas of labor, compensation, healthcare, freight and rent are leading to higher expenses.

New Boat Sales: New boat sales declined below the pre-pandemic level through July. Per National Marine Manufacturers Association (NMMA) reports, new powerboat sales were 187,000 units in the first seven months of 2022, down 18% from the same period in 2021. The decline can be primarily attributed to uncertain economic conditions and supply chain turbulence. New pontoon sales declined 13% in the first seven months of 2022, while new wake sport boat sales were down 11%. Despite the recent concern, per NMMA, 2022 is likely to be a healthy year for the boat industry.

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 popped up as 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 #166, which places it in the bottom 34% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms 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 Jun 30, 2022, the industry's earnings estimates for 2022 have decreased 28.2%.

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 41.2% over the past year compared with the S&P 500’s fall of 18.9%. The Zacks Consumer Discretionary sector has declined 31.6% 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 21.57X compared with the S&P 500’s 17.3X and the sector’s 16.41X. 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 20.61X, 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 $590-$625 million.
                                           
Shares of this Zacks Rank # 2 company have gained 20.3% in the past six months. The Zacks Consensus Estimate for 2023 earnings has been revised upward by 7.1% in the past 30 days.

Price & Consensus: MCFT

Academy Sports and Outdoors: Based in Katy, TX, the company, through its subsidiaries, operates as a sporting good 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 six months, shares of this Zacks Rank #3 (Hold) company have increased 37.2%. The Zacks Consensus Estimate for 2023 has been revised upward by 3.8% in the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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 is expected to witness a growth of 0.4% year over year. The stock has decreased 6% in the past year.

Price & Consensus: GOLF



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