The Zacks Leisure and Recreation Products industry comprises companies that provide amusement and recreational products such as swimming pools, golf courses, boats and outdoor spaces, to name a few. Some of the industry participants also manufacture outdoor equipment and apparels for climbing, mountaineering, backpacking and skiing.
The industry, as a whole, primarily thrives on overall economic growth, which fuels consumer demand for products. In fact, demand is highly dependent on business cycle and gains momentum from 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, an optimal state of full employment and stability. The state of the economy is neither too dull to cause recession nor too bright to result in inflation. The industry continues to benefit from a low unemployment rate and a steady rise in wages. This, in turn, has resulted in increased household spending across the United States. At the same time, consumer confidence levels remain high. In this scenario, one can expect leisure products providers to gain on rising consumer demand.
- The industry is highly susceptible 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 rise 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 benefit from 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 CAGR of 3.1% from 2020 to 2024. User penetration is 19.8% in 2020 and is expected to reach 26.3% by 2024. Furthermore, the boating market is also witnessing robust demand and the trend is likely to continue in the near term. According to National Marine Manufacturers Association, the 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 rapidly rising.
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 bright near-term prospects.
The Leisure and Recreation Products industry currently carries a Zacks Industry Rank #14, which places it in the top 6% of more than 254 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 top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since Dec 31, 2019, the industry’s earnings estimate for the current year has rallied 15.8%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
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 gained 18% over the past year compared with the S&P 500 and Zacks Consumer Discretionary sector’s rally of 23.7% and 21.1%, 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 28.84X versus the S&P 500’s 18.82X and the sector’s 20.45X. Over the past five years, the industry has traded as high as 31.68X, and as low as 12.9X, with the median being at 15.5X, as the charts show.
Forward Price To Earnings Ratio Compared With S&P
The near-term outlook for the industry looks bright. Steady rise in wages and lower unemployment have been creating a favorable environment for leisure stocks.
Below are four stocks with positive earnings estimate revisions and a favorable Zacks Rank that investors can take a look at.
Acushnet Holdings Corp. (GOLF - Free Report) designs, develops, manufactures, and distributes golf products in the United States, Europe, the Middle East, Africa, Japan, Korea, and internationally. The company sports a Zacks Rank #1 (Strong Buy). Earnings estimates for 2020 have increased 5.6% over the past month to $1.69, suggesting growth of 6.1% from the year-ago period. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: GOLF
American Outdoor Brands Corporation (AOBC - Free Report) , which designs, manufactures, and sells firearms worldwide, flaunts a Zacks Rank # 1. Earnings estimates for fiscal 2020 have been revised 9.5% upward over the past 60 days to 81 cents.
Price and Consensus: AOBC
Johnson Outdoors Inc. (JOUT - Free Report) , which designs, manufactures, and markets camping, diving, watercraft, and marine electronics products worldwide, sports a Zacks Rank #1. Earnings estimates for the fiscal 2020 have improved 10.1% over the past month to $5.12.
Price and Consensus: JOUT
Vista Outdoor Inc. (VSTO - Free Report) designs, manufactures, and markets consumer products for outdoor sports and recreation markets in the United States and internationally. The company carries a Zacks Rank #1. Earnings estimates for the 2020 have increased 23.1% over the past month to 16 cents, indicating an improvement of 14.3% from the prior-year reported figure.
Price and Consensus: VSTO