The growing global interest in sports and fitness activities is driving the athletic industry forward, opening up potential for businesses in technology-driven fitness gadgets and specialized training programs.
While popular athletic footwear and apparel powerhouse NIKE, Inc. (NKE) has been an investor favourite for a long time. However, given the near-term concerns related to its financials and strict regulations impacting its business, I think Vista Outdoor Inc. (VSTO), BRP Inc. (DOOO), and American Outdoor Brands, Inc. (AOUT) are better positioned to capitalize on the industry’s prospects.
NKE’s shares have lost 21.1% over the past six months to close the last trading session at $95.34.
However, the stock is trading at a premium valuation, which its financials may fail to justify amid the economic headwinds. Its forward EV/Sales multiple of 2.82 is 152.2% higher than the 1.12 industry average. Also, its forward EV/EBITDA multiple of 20.01 is 119.2% higher than the industry average of 9.13.
In addition, NKE reported disappointing first-quarter results. The company’s net income came in at $1.45 billion, down 1.2% year-over-year. Also, its EPS decreased 1.1% year-over-year to $0.94. So, it could be wise to wait for a better entry point in NKE.
On the other hand, the fitness and recreational sports centers market is expected to reach $88.61 billion by 2027 at a CAGR of 10%. The increasing awareness of health and wellness among individuals globally can be attributed to the rise of the global fitness and recreational sports center market.
Also, the growing popularity of fitness activities such as yoga, Pilates, and CrossFit is likely to propel the industry even further in the coming years.
Also, the sports apparel market is expected to reach $28.77 billion by 2029 at a 6.7% CAGR. Innovations in fabric technology, as well as the growing trend of athleisure wear, are increasing demand for athletic apparel.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Athletics & Recreation stocks, beginning with number 3.
Stock #3: Vista Outdoor Inc. (VSTO)
VSTO in Anoka, Minn., designs, manufactures, and markets consumer products in the outdoor sports and recreation markets in the United States and internationally. The company operates through two segments: Shooting Sports and Outdoor Products.
VSTO’s trailing-12-month EV/EBITDA multiple of 5.42 is 40.7% lower than the industry average of 9.13. Its trailing-12-month EV/EBIT multiple of 6.84 is 46.2% lower than the industry average of 12.71.
VSTO’s trailing-12-month ROTC of 11.82% is 94.6% higher than the 6.08% industry average, while its trailing-12-month levered FCF margin of 9.53% is 87% higher than the industry average of 5.10%.
VSTO’s total current assets came in at $1.22 billion for the period that ended June 25, 2023, compared to $1.20 billion for the period that ended March 31, 2023. Also, its total assets came in at $2.81 billion, compared to $2.80 billion for the same period.
The consensus revenue estimate of $3.02 billion for the year ending March 2025 represents a 5.1% increase year-over-year. Its EPS is expected to grow 12.9% year-over-year to $5.30 for the same period. It surpassed EPS estimates in all four trailing quarters. VSTO’s shares have gained 21.9% over the past nine months to close the last trading session at $30.59.
VSTO’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VSTO has a B grade for Value, Momentum and Quality. Within the Athletics & Recreation industry, it is ranked #7 out of 37 stocks. Click here for the additional POWR Ratings for Growth, Stability, and Sentiment for VSTO.
Stock #2: 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.
DOOO’s forward non-GAAP P/E multiple of 8.02 is 43.1% lower than the industry average of 14.09. Its forward EV/EBIT multiple of 6.90 is 45.7% lower than the industry average of 12.71.
DOOO’s trailing-12-month ROCE of 255.41% is significantly higher than the industry average of 11.39%. Its trailing-12-month ROTC of 29.56% is 386.5% higher than the industry average of 6.08%.
In the fiscal 2024 second quarter that ended July 31, 2023, DOOO’s revenues increased 13.9% year-over-year to CAD 2.78 billion ($2.03 billion). Its gross profit grew 15.7% from the year-ago value to CAD 697.60 million ($509.05 million). The company’s normalized EBITDA came in at CAD 473.10 million ($345.23 million), up 13.1% year-over-year.
In addition, the company’s net income and EPS increased 42.3% and 44.9% year-over-year to CAD 338.70 million ($247.16 million) and CAD 4.26, respectively.
Analysts expect DOOO’s revenue to increase 10.7% year-over-year to $8.09 billion for the year ending January 2024. Its EPS is expected to grow 6.5% year-over-year to $9.35 for the same period. It surpassed EPS estimates in all the four trailing quarters. The stock has gained 13.3% over the past year to close the last trading session at $75.04.
It’s no surprise that DOOO has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Value. It is ranked #3 in the same industry.
Beyond what is stated above, we’ve also rated DOOO for Growth, Stability, Sentiment, Momentum and Quality. Get all DOOO ratings here.
Stock #1: American Outdoor Brands, Inc. (AOUT)
AOUT provides outdoor products and accessories for rugged outdoor enthusiasts in the United States and internationally.
AOUT’s forward EV/Sales multiple of 0.66 is 40.7% lower than the industry average of 1.12. Its forward Price/Sales multiple of 0.63 is 22.1% lower than the industry average of 0.81.
AOUT’s trailing-12-month gross profit margin of 46.47% is 31.2% higher than the 35.41% industry average. Its trailing-12-month levered FCF margin of 15.30% is 200.2% higher than the 5.10% industry average.
AOUT’s net sales came in at $43.45 million in the first quarter that ended July 31, 2023, while its gross profit came in at $19.72 million, up 3.6% year-over-year. Also, its non-GAAP operating income and net income grew 85.2% and 16.7% from the prior-year quarter to $100,000 and $98,000, respectively.
Street expects AOUT’s revenue to increase 3.6% year-over-year to $198.05 million for the year ending April 2024. Its EPS is expected to come in at $0.47 for the same period. Over the past three months the stock has gained 11.7% to close the last trading session at $9.62.
AOUT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked first in the same industry. It has an A grade for Growth, and Sentiment and a B for Value and Quality. To see additional AOUT’s ratings for Stability and Momentum, click here.
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DOOO shares were trading at $74.86 per share on Friday afternoon, down $0.18 (-0.24%). Year-to-date, DOOO has declined -1.26%, versus a 13.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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