The Zacks leisure and recreation products industry has been plagued by concerns about the weak US economy. High inflation continues to hurt most industries, and leisure and recreation products are no exception. However, the surge in fitness product sales due to increasing awareness of health and fitness among people and robust boat sales bode well. Industry participants that design, market, sell and distribute products for the outdoor and leisure markets are experiencing robust demand. like stocks Academy Sports and Outdoors, Inc. ASO, Acushnet Holdings Corp. GOLF and MasterCraft Boat Holdings, Inc. MCFT should benefit from the trend mentioned above.
Zacks’ Leisure and Recreation Products industry includes companies that provide amusement and recreation products, swimming pools, marine products, golf courses, boat repair and maintenance services, and other ancillary services. Services include indoor and outdoor storage, shipping, boat rentals, and personal watercraft. Some industry participants manufacture outdoor gear and apparel for climbing, mountaineering, hiking and skiing. Some companies also offer connected fitness products and subscriptions for multiple household users. Industry players primarily live from macroeconomic growth, which drives consumer demand for products. Demand, which is highly cyclical, 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
US Economy Slowdown Concerns: A slowdown in the economy is likely to hurt the industry. Worries about a global slowdown and a possible recession are spreading in the stock market. Inflation in the United States remains the main challenge for the economy. The Fed indicated that if there were more signs of easing inflation, it would slow the rate hikes. However, it continues to support rising interest rates in 2023. The consumer price index (CPI) for November 2022 was 7.1% after record highs of 8.2% in September and 8.3% in August. Still, the numbers are a far cry from the Federal Reserve’s ambitious 2% target for a strong economy. Inflationary cost increases in labor, compensation, healthcare, freight, and rent result in higher spending.
New boat sale: Sales of new boats slipped below pre-pandemic levels through July. According to reports from the National Marine Manufacturers Association (NMMA), new powerboat sales in the first seven months of 2022 totaled 187,000 units, down 18% from the same period in 2021. The decline is primarily due to uncertain economic conditions and supply chain turmoil. Sales of new pontoons fell 13% in the first seven months of 2022, while sales of new wake pleasure boats fell 11%. Despite recent concerns, 2022 looks set to be a healthy year for the boating industry, according to the NMMA.
Booming golf business: The golf industry has performed exceptionally well amid the pandemic. Golf is benefiting from an increasing participation of young people. Technology has also played a crucial role in transforming the sport. India and China have emerged as two of the largest emerging golf markets.
Zacks’ industry ranking suggests a bleak outlook
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 member stocks, indicates near-term prospects.
The Leisure and Recreation Products industry is currently ranked #166 by Zacks Industry, placing it in the bottom 34% of more than 250 Zacks industries. Our research shows that the top 50% of industries evaluated by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of industries ranked by Zacks is a result of the negative earnings outlook for each company overall. Looking at the revisions to aggregate earnings estimates, it appears that analysts are beginning to lose confidence in this group’s earnings growth potential. Since June 30, 2022, industry earnings estimates for 2022 are down 28.2%.
Before we review some industry stocks that you might want to consider, let’s take a look at recent stock market performance and the industry’s valuation picture.
Sector Undercut 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 are down 41.2% overall over the past year, compared to the 18.9% drop in the S&P 500. The Zacks consumer discretionary sector is down 31.6% over the same period.
One year value for money
Based on the forward 12-month price-to-earnings multiple, which is a commonly used multiple to value recreational products stocks, the industry is trading at 21.57X, compared to the S&P 500’s 17.3X and the 16.41X sector. Over the past five years, the industry has traded as high as 44.8x and as low as 12.36x, with the median at 20.61x, the charts show.
Forward price-to-earnings ratio versus S&P
3 Leisure and Recreation Product Stocks to Watch
MasterCraft Boat: Based in Vonore, TN, this company designs, manufactures and markets recreational power boats through its subsidiaries. The company is benefiting from robust volumes, higher prices and higher option writing. For 2023, the company anticipates net sales of between $590 million and $625 million.
Shares of this Zacks Rank #2 company are up 20.3% over the past six months. The Zacks Consensus estimate for 2023 earnings has been revised up 7.1% over the past 30 days.
Price & Consensus: MCFT
Academy Sport and Outdoor: Based in Katy, TX, the Company, through its subsidiaries, operates as a retailer of sporting goods and outdoor recreation products in the United States. It is benefiting from robust consumer demand across all markets and categories of goods, particularly in sports and leisure. A rising demand for indoor and outdoor games, bicycles, 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.
Over the past six months, shares of this Zacks Rank #3 (hold) company are up 37.2%. The Zacks consensus estimate for 2023 has been revised up 3.8% over the past 30 days. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: ASO
Acushnet Holdings: Based in Fairhaven, MA, this company designs, develops, manufactures and sells golf products in the United States, Europe, the Middle East, Africa, Japan, Korea and internationally. This Zacks-ranked #3 company is likely to benefit from an increasing demand for golf balls. The company benefits from a healthy backlog, strong immediate demand, lean channel inventories and gradually increasing production levels.
The company’s revenue is expected to increase by 0.4% year-on-year in 2023. The stock is down 6% over the past year.
Price & Consensus: GOLF
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Academy Sports and Outdoors, Inc. (ASO): Free Stock Research Report
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