The Zacks Leisure and Recreation Products industry covers companies providing amusement and recreational products such as swimming pools, golf courses, boats and outdoor spaces to name a few. A couple of companies within the industry manufacture outdoor equipment and apparels for climbing, mountaineering, backpacking and skiing.
The industry, as a whole, primarily thrives on overall economic growth. Consumer demand for products is purely subject to general economic conditions. Demand is highly dependent on business cycle and gains momentum from a healthy labor market, rising wages and growing disposable income.
Let’s take a look at the industry’s three major themes:
- The U.S. economy is currently witnessing a Goldilocks scenario and is operating in an optimal state by providing full employment and stability. The state of the economy is neither too dull to cause recession nor too bright to result in inflation. In this scenario, one can expect leisure products providers to gain from increased consumer demand. However, these companies continue to exhibit volatility, given the tricky nature of consumer discretionary spending. Also, inflation and tariff concerns are intermittently affecting leisure stocks.
- The industry is highly vulnerable to changing weather conditions. For instance, demand for skiing directly depends on the amount and timing of snowfall. Further, swimming pool manufacturers always witness higher demand in summer. Additionally, there is a general boost in demand for outdoor and sports activities during the holiday season. Most companies in the recreational products space have specific quarters of revenue growth. Pool Corporation's (POOL - Free Report) sales are favored by weather conditions in the second and third quarters of a calendar year.
- Apart from higher personal expenditure, increased demand for leisure products and services is aiding the leisure industry. According to a report by Statista, sports and outdoor space revenues are expected to witness a compound annual growth rate (CAGR) of 3.6% from 2019 to 2023. User penetration was 17.7% in 2019 and is expected to reach 25.1% by 2023. Per Deloitte, retailers of leisure goods have witnessed strong growth since 2010. Furthermore, the boating market is also witnessing robust demand and the trend is likely to continue in the near term. National Marine Manufacturers Association had mentioned that boat manufacturers are continuously increasing production to support high demand. Demand for powerboats, including small sterndrive, wakeboard boats and smaller fiberglass boats with jet technology, is rising rapidly.
Zacks Industry Rank Indicates Dull 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 dismal near-term prospects.
The Leisure and Recreation Products industry currently carries a Zacks Industry Rank #186, which places it in the bottom 27% 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 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, 2018, the industry’s earnings estimate for the current year has gone down 11.5%.
Despite the industry’s drab near-term prospects, we present a few Leisure and Recreation Products stocks that one can consider. But it’s worth taking a look at the industry’s shareholder return and current valuation.
Industry Lags on Shareholder Returns
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 22.7% over the past year compared with the S&P 500 and Zacks Consumer Discretionary sector’s decrease of 2.6% and 6.3%, respectively.
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 14.2X versus the S&P 500’s 16.48X and the sector’s 18.01X.
Forward Price To Earnings Ratio Compared With S&P
Over the past five years, the industry has traded as high as 18.97X, as low as 12.23X and at the median of 15.53X, as the charts show.
Forward Price To Earnings Ratio Compared With Sector
The near-term outlook for the industry reflects the increasing anxiety over the negative impact of the imposition of tariffs. The leisure space might find it difficult to tide over the broader challenges in the near term. So, it may not be a good idea to bet on this space right now. However, keeping the long-term expectations in mind, investors could take advantage of the cheap valuation and bet on a few stocks that have a strong earnings outlook.
Below are three stocks with positive earnings estimate revisions and a favorable Zacks Rank.
Marine Products Corporation (MPX - Free Report) designs, manufactures, and sells recreational fiberglass powerboats worldwide. The company carries a Zacks Rank #1 (Strong Buy). Earnings estimates for the current year have increased 2.3% over the past month to 89 cents. This suggests that earnings per share will grow 7.3% year over year in 2019. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: MPX
Callaway Golf Company (ELY - Free Report) , which designs, manufactures, and sells golf clubs, golf balls, golf bags, and other golf-related accessories, carries a Zacks Rank #2 (Buy). Earnings estimates for 2019 have been revised 2.9% upward over the past 60 days to $1.06.
Price and Consensus: ELY
Outdoor recreational product manufacturer, YETI Holdings (YETI - Free Report) carries a Zacks Rank #2. Earnings estimates for the current year have increased 1.9% over the past month to $1.09, suggesting an increase of 19.8% from the prior year.
Price and Consensus: YETI