The recreation industry is poised to witness significant growth and profitability this year, driven by a considerable surge in demand for outdoor recreation, robust consumer spending, high consumer disposable income, and supportive government policies.
Amid this backdrop, it seems wise to invest in quality recreation stocks Skechers U.S.A., Inc. (SKX), BRP Inc. (DOOO), and Johnson Outdoors Inc. (JOUT), which are attracting the attention of smart money.
The recreation industry is diverse in nature involving several subsegments such as gambling, gaming, and other entertainment services; travel & tourism; eco-leisure; hiking, fishing, and other outdoor activities; and clubs, sports, and fitness. The demand for recreational activities is expected to remain strong as people increasingly turn to recreation for physical and mental well-being.
Furthermore, the outdoor recreation sector has seen significant growth in recent years. According to the 2023 outdoor participation trends report from the Outdoor Industry Association, the outdoor recreation participant base increased by 2.3% in 2022 to a record 168.1 million participants or 55% of the U.S. population.
Nearly 80% of outdoor activity categories witnessed participation growth last year, including large categories such as camping and fishing and smaller categories like sport climbing and skateboarding. This trend will continue in 2023 and beyond as Americans are expected to make more travel and recreation plans.
Moreover, there is a significant increase in demand for sporting goods, including sporting equipment, firearms and hunting equipment, athletic apparel, and footwear. According to a report by Straits Research, the global sports equipment market size is projected to reach $611.27 billion by 2031, exhibiting a CAGR of 6.7% during the forecast period (2023-2031).
Meanwhile, as per a report by Arizton Advisory & Intelligence, the U.S. recreational boat market size is expected to reach $26.18 billion by 2027, growing at a CAGR of 8.26%. The flourishing tourism industry would drive the market’s growth. In addition, advancements in autonomous marine technology should boost the market’s expansion.
In addition, in Match 2023, the government introduced America’s Outdoor Recreation Act of 2023 (AORA), which would increase and improve outdoor recreation opportunities nationwide while improving infrastructure and driving economic growth in rural communities.
“The America’s Outdoor Recreation Act includes provisions that will remove old roadblocks in the permitting system and enable more Americans to experience the joy of rock climbing, mountaineering, and backcountry skiing in forests and parks across the country,” said Alex Kosseff, Executive Director of the American Guides Association.
Such favorable government initiatives should bode well for the recreation industry.
Given the industry’s tailwinds, fundamentally sound recreation stocks SKX, DOOO, and JOUT, which have been gaining significant institutional investment traction lately, could be solid buys now.
Let’s take a closer look at the fundamentals of these stocks:
Skechers U.S.A., Inc. (SKX)
SKX designs, develops, markets, and distributes a wide range of lifestyle and performance footwear, apparel, and accessories for men, women, and children worldwide. The company operates through two segments: Wholesale and Direct-to-Consumer. It offers products under the Skechers USA, Skechers Sport, Skechers Active, and Modern Comfort brands.
SKX exhibits substantial institutional ownership, with institutions owning around a 94.01% stake. Moreover, the total value of these holdings amounts to $6.84 billion.
On August 1, entertainment icon Snoop Dogg announced to bring his style to SKX as part of a multi-year partnership. The Skechers x Snoop Dogg collection fuses the innovative comfort of Skechers with Snoop’s unique design vision in a range of versatile and street-ready sneakers that adapt to any lifestyle. This collaboration should bode well for the company.
On July 20, the Skechers x Ashley Park footwear collab got launched. The footwear collab features styles inspired by the performer’s travels around the world and is designed for versatility, and provides a unique, trendy silhouette thanks to the stylish design. This new launch is expected to boost the company’s revenue streams.
On April 27, SKX signed an agreement to acquire Sports Connection Holding ApS, its existing distributor in the Scandinavian region. The Sports Connection business comprises 58 existing Skechers retail locations, various e-commerce solutions, and more than 1,600 wholesale customers.
This acquisition is expected to expand SKX’s reach in Europe by combining the Sports Connection team’s local expertise with its global capabilities and financial resources.
For the second quarter that ended June 30, 2023, SKX’s sales increased 7.8% year-over-year to $2.01 billion, and its Direct-to-Consumer sales rose 29.1%. Its gross profit grew 18.2% from the year-ago value to $1.06 billion. Also, the company’s earnings from operations were $217.70 million, an increase of 41.2% year-over-year.
Furthermore, the company’s net earnings came in at $152.80 million, up 69% year-over-year. Its earnings per share rose 69% from the prior year’s quarter to $0.98.
Analysts expect SKX’s revenue and EPS for the fiscal year (ending December 2023) to increase 9% and 43.5% year-over-year to be $8.12 billion and $3.42, respectively. Moreover, the company surpassed the revenue estimates in each of its trailing four quarters, which is impressive.
In addition, the company’s revenue and EPS for the fiscal year 2024 are expected to grow 11.1% and 20.6% from the previous year to $9.02 billion and $4.12, respectively.
Shares of SKX have gained 10.2% over the past six months and 44.2% over the past year to close the last trading session at $54.19.
SKX’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SKX has a B grade for Growth and Sentiment. Within the Athletics & Recreation industry, it is ranked #5 out of 37 stocks.
Click here to see the other ratings of SKX for Quality, Value, Momentum, and Stability.
BRP Inc. (DOOO)
Headquartered in Valcourt, Canada, DOOO designs, develops, manufactures, distributes, and markets power sports vehicles and marine products in North America, Europe, Australia, New Zealand, and Latin America. Institutional shareholders own a 56.07% stake suggesting that DOOO has credibility in the eyes of smart money. The total value of its holdings amounts to $1.88 billion.
On April 11, DOOO officially opened its first European Design and Innovation Centre. The new Centre, located in Sophia Antipolis in the south of France, reasserts the central role that the company assigns to design and innovation as a growth driver.
This installation in Sophia Antipolis demonstrates DOOO’s desire to immerse itself even more in European trends and to continue to provide products that meet the current and future needs of its customers and the communities in which it operates. The Centre will carry out advanced concept studies on sustainable urban mobility and play a leading role in DOOO’s global electrification strategy.
In the fiscal 2024 first quarter that ended April 30, 2023, DOOO’s revenues increased 34.3% year-over-year to CAD 2.43 billion ($1.82 billion). Its gross profit grew 37.2% from the year-ago value to CAD 623.50 million ($468.12 million). The company’s normalized EBITDA came in at CAD 377.10 million ($283.12 million), up 38.6% year-over-year.
In addition, the company’s net income and EPS increased 27.7% and 31.5% year-over-year to CAD 154.50 million ($116 million) and CAD 1.92, respectively.
The consensus revenue estimate of $8.43 billion for the fiscal year (ending January 2024) reflects a 15.3% year-over-year improvement. Likewise, the consensus EPS estimate of $9.48 for the ongoing year indicates an 8% rise year-over-year. Also, DOOO topped the consensus revenue and EPS estimates in all four trailing quarters.
Furthermore, analysts expect DOOO’s revenue and EPS for the fiscal year 2025 to grow 6.6% and 9.2% year-over-year to $8.99 billion and $10.35, respectively.
The stock has gained 21.6% year-to-date and 22.8% over the past year to close the last trading session at $90.50.
DOOO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
DOOO has a B grade for Sentiment. Within the 37-stock Athletics & Recreation industry, the stock is ranked #4.
Beyond what we stated above, we also have DOOO’s ratings for Momentum, Stability, Value, Growth, and Quality. Get all DOOO ratings here.
Johnson Outdoors Inc. (JOUT)
JOUT designs, manufactures, and markets seasonal and outdoor recreational products for fishing internationally. It operates through four segments: Fishing; Camping; Watercraft Recreation; and Diving. The company offers products, including electric motors for trolling, marine battery chargers, military tents and accessories, camping furniture, and stoves.
Institutions own nearly 67.37% of JOUT, and the total value of holdings is around $348 million.
On May 25, JOUT announced a quarterly dividend of $0.31 per Class A share and $0.28 per Class B share, payable to shareholders on July 27, 2023.
JOUT’s annual dividend of $1.24 translates to a 2.17% yield on the current share prices, while its four-year average dividend yield is 1.22%. Its dividend payouts have grown at CAGRs of 22.2% and 23% over the past three and five years, respectively. The company has increased its dividend for eight consecutive years.
On March 3, JOUT entered into a definitive agreement to sell the Eureka! Military and Commercial Tents product lines of its Camping business segment to Rekord Group, a global company specializing in commercial, event, and military tents and structures.
“The agreement with Rekord Group will allow Johnson Outdoors’ Camping business to focus more of its efforts on opportunities in our recreational camping business and lead with consumer-focused innovation,” said Helen Johnson-Leipold, JOUT’s Chairman and Chief Executive Officer.
During the third quarter that ended June 30, 2023, JOUT’s fishing sales increased by nearly 1% year-over, driven primarily by product price increases. Its gross profit rose 5.6% from the year-ago value to $77.59 million. Also, its profit before income taxes increased 3% from the prior year’s quarter to $19.82 million.
Additionally, the company’s net income grew 5.1% year-over-year to $14.80, while its net income per common share was $1.44, an increase of 4.4% year-over-year.
Analysts expect JOUT’s revenue for the fiscal year (ending September 2023) to increase 2.6% year-over-year to $759.56 million. The consensus EPS estimate of $5.11 for the same period indicates a 23.7% rise year-over-year. In addition, the company surpassed the consensus revenue estimates in all four trailing quarters.
JOUT’s shares have gained 9.8% over the past nine months to close the last trading session at $57.17.
JOUT’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
JOUT has a B grade for Value. The stock is ranked #11 in the same industry. To access JOUT’s ratings for Growth, Sentiment, Momentum, Stability, and Quality, click here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
SKX shares were unchanged in premarket trading Thursday. Year-to-date, SKX has gained 29.18%, versus a 18.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
The post 3 Recreation Stocks Smart Money Is Following appeared first on StockNews.com