For Immediate Release
Chicago, IL – March 4, 2024 – Today, Zacks Equity Research discusses Academy Sports and Outdoors, Inc. ASO, Acushnet Holdings Corp. GOLF and American Outdoor Brands, Inc. AOUT.
Industry: Leisure & Recreation
Link: https://www.zacks.com/commentary/2234434/3-leisure-recreation-products-stocks-to-escape-industry-woes
The Zacks Leisure and Recreation Products industry faces challenges due to high inflation and concerns regarding the 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., Acushnet Holdings Corp. and American Outdoor Brands, Inc. 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. 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: The global economy is expected to suffer a downturn, which could negatively impact various industries. Inflation saw a higher-than-anticipated increase in January, causing unease on Wall Street, which had initially started the year with strong performance.
According to the Labor Department, the consumer price index (CPI) experienced a month-on-month increase of 0.3% in January and a year-on-year increase of 3.1%, following a 3.4% increase in December. These figures surpassed economists' predictions, which were a 0.2% increase for the month and a 2.9% increase on an annual basis. Even though the annual inflation rate was slightly lower than the previous month, it remains significantly above the Federal Reserve's target of 2%.
New Boat Sales: New boat sales are likely to have declined in 2023 owing to higher interest rates. For the calendar year 2024, the recreational boating sector is expected to maintain sales volumes of new units consistent with those of 2023, even as it deals with fluctuating interest rates and changes in consumer sentiment.
Moving forward, companies within the recreational marine sector are concentrating on the ongoing introduction of innovative products and plan to feature new technologies at numerous upcoming boat shows nationwide. These innovations include marine engines powered by hydrogen and boats that operate entirely on eco-friendly marine fuels.
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 is also 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 #198, which places it in the bottom 21% of more than 251 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 losing confidence in this group’s earnings growth potential. Since Sep 30, 2023, the industry's earnings estimates for 2023 have declined 20%.
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 Underperforms 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 dropped 1.3% in the past year compared with the S&P 500’s rally of 26.5%. The Zacks Consumer Discretionary sector has risen 10.3% in the same time frame.
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 23.94X compared with the S&P 500’s 20.8X and the sector’s 17.99X. In the past five years, the industry has traded as high as 44.80X and as low as 12.99X, with the median being at 22.58X.
3 Leisure & Recreation Products Stocks to Watch
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 #2 (Buy) 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. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company’s sales and earnings in 2024 are expected to witness growth of 2.5% and 5% year over year, respectively. The stock has increased 21.2% in the past year.
Academy Sports and Outdoors: Based in Katy, TX, the company, through its subsidiaries, operates as a retailer of sporting goods and outdoor recreational products 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 26.1%. The company has an impressive long-term earnings growth rate of 10.1%.
American Outdoor Brands: Headquartered in Columbia, MO, the company supplies outdoor goods and accessories designed for adventurous individuals in the United States and globally. The firm is experiencing positive results from strong net sales, effective capital management and continual advancement toward achieving its long-term strategic goals.
The company’s sales and earnings in fiscal 2025 are expected to witness growth of 5% and 62.2% year over year, respectively. The stock has declined 17.7% in the past year.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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