The growing interest in sports and fitness worldwide is boosting the prospects of the athletic industry. The sector is capitalizing on the cultural shift toward health and wellness, with companies introducing new products and services and leveraging social media and influencer marketing to reach a broader audience.
Amid this backdrop, it could be wise to buy fundamentally strong athletic stocks Vista Outdoor Inc. (VSTO), Skechers U.S.A., Inc. (SKX), American Outdoor Brands, Inc. (AOUT), and Gaia, Inc. (GAIA).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the athletic industry is well-positioned for growth.
Physical and mental well-being being the rising priorities of Americans, there has been increased participation in outdoor activities. The pandemic revolutionized the industry as it pushed more people to undertake outdoor activities like camping, fishing, surfing, skiing, climbing, and skateboarding, helping drive significant growth in the athletics and recreation industry.
The popularity of outdoor activities amongst Americans can be gauged from The U.S. Department of Commerce’s Bureau of Economic Analysis (BEA) economic data, which showed that outdoor recreation added $1 trillion to the U.S. economy in 2022.
Last year, the industry faced inventory and macroeconomic pressures, including inflation. However, with inflation showing signs of easing and the Federal Reserve indicating interest rate cuts this year, the athletics and recreation industry is likely to bounce back.
In 2024, the global Sports Equipment market is expected to generate $172 billion in revenue, growing at a CAGR of 5.9%. Furthermore, driven by increased demand for specialized sportswear and strategic promotions through social media, the sportswear market is projected to reach $635.69 billion by 2028, registering a CAGR of 6.9%.
Considering these conducive trends, let’s analyze the fundamentals of the four Athletics & Recreation industry picks, beginning with the fourth choice.
Stock #4: Vista Outdoor Inc. (VSTO)
VSTO designs, manufactures, and markets outdoor recreation and shooting sports products in the United States and internationally. The company operates through two segments: Sporting Products and Outdoor Products.
On January 3, 2024, Foresight Sports, a VSTO brand, announced the release of the Foresight Falcon, a compact and powerful overhead golf launch monitor featuring advanced simulation capabilities and quadrascopic camera technology. Priced at $14,999, it offers a hitting zone twice the size of competitors and delivers over a dozen points of ball and club performance data with each shot.
In terms of the trailing-12-month EBITDA margin, VSTO’s 15.73% is 43.5% higher than the 10.96% industry average. Likewise, its 11.64% trailing-12-month levered FCF margin is 116.7% higher than the 5.37% industry average. Furthermore, the stock’s 8.70% trailing-12-month Return on Total Capital is 44% higher than the 6.04% industry average.
VSTO’s net sales for the fiscal second quarter ended September 24, 2023, came in at $676.81 million. The company’s net income came in at $44.42 million, and EPS came in at $0.77. Moreover, its adjusted EBITDA stood at $116.12 million.
For the quarter ending June 30, 2024, VSTO’s EPS and revenue are expected to increase 8.9% and 3.8% year-over-year to $1.22 and $719.30 million, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 16.7% to close the last trading session at $29.03.
VSTO’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #4 out of 36 stocks in the Athletics & Recreation industry. It has an A grade for Value and a B for Momentum and Quality. Click here to see VSTO’s Growth, Stability, and Sentiment ratings.
Stock #3: Skechers U.S.A., Inc. (SKX)
SKX designs, develops, markets, and distributes footwear 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, Modern Comfort, etc.
In terms of the trailing-12-month gross profit margin, SKX’s 50.78% is 44% higher than the 35.27% industry average. Likewise, its 1.14x trailing-12-month asset turnover ratio is 15.5% higher than the 0.98x industry average. Additionally, the stock’s 9.38% trailing-12-month EBIT margin is 22.8% higher than the 7.64% industry average.
For the third quarter that ended September 30, 2023, SKX’s sales increased 7.8% year-over-year to $2.03 billion. Its gross profit rose 21.3% over the prior-year quarter to $1.07 billion. Also, the company’s net earnings stood at $145.40 million and $0.93 per share, respectively, up 69.3% and 69.1% year-over-year.
Street expects SKX’s EPS for the quarter ended December 31, 2023, to increase 13.2% year-over-year to $0.54, and its revenue for the same quarter is expected to increase 8.4% year-over-year to $2.04 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 38.6% to close the last trading session at $64.07.
SKX’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Sentiment. It is ranked #3 in the same industry. To see SKX’s Growth, Value, Momentum, Stability, and Quality ratings, click here.
Stock #2: American Outdoor Brands, Inc. (AOUT)
AOUT provides outdoor products and accessories for rugged outdoor enthusiasts. It offers hunting, fishing, camping, shooting, and personal security and defense products. The company also provides shooting sports accessories, including rests, vaults, and other related accessories, outdoor lifestyle products, land management tools, harvesting products, and outdoor cooking products.
On September 26, 2023, AOUT announced a patent settlement with The Allen Company, Inc., securing a permanent injunction against Allen for patent infringement related to AOUT’s products, including LEAD SLED shooting rests, Orange Peel® shooting targets, and Ultimate Target Stand.
The settlement, entered by the United States District Court for the District of Colorado, prohibits Allen from selling specific products. AOUT’s CEO, Brian Murphy, emphasized the importance of protecting intellectual property to focus on building authentic lifestyle brands.
In terms of the trailing-12-month gross profit margin, AOUT’s 45.90% is 30.2% higher than the 35.27% industry average. Likewise, its 11.01% trailing-12-month levered FCF margin is 104.9% higher than the 5.37% industry average.
AOUT’s net sales for the fiscal second quarter that ended October 31, 2023, increased 6.4% year-over-year to $57.93 million. For the same quarter, its non-GAAP net income came in at $3.29 million, while its non-GAAP net income per share stood at $0.25.
Analysts expect AOUT’s revenue for the quarter ending January 31, 2024, to increase 0.6% year-over-year to $51.17 million. Its EPS for the quarter ending July 31, 2024, is expected to increase 50% year-over-year to $0.02. Over the past month, the stock has gained 21.2% to close the last trading session at $9.15.
AOUT’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth, Value, Sentiment, and Quality. Within the Athletics & Recreation industry, it is ranked #2. Click here to see AOUT’s ratings for Momentum and Stability.
Stock #1: Gaia, Inc. (GAIA)
GAIA operates a digital video subscription service and online community for underserved member bases internationally. It has a digital content library with various titles in Spanish, German, and French languages available to its subscribers on internet-connected devices.
In terms of the trailing-12-month Capex/Sales, GAIA’s 18.38% is 340.8% higher than the 4.17% industry average. Likewise, its 0.58x trailing-12-month asset turnover ratio is 15.4% higher than the 0.50x industry average. Additionally, the stock’s 85.88% trailing-12-month gross profit margin is 75.8% higher than the 48.86% industry average.
For the fiscal third quarter, which ended September 30, 2023, GAIA’s net revenue increased 1.6% year-over-year to $20.22 million. Its gross profit stood at $17.24 million. Additionally, adjusted EBITDA came in at $3.94 million.
For the quarter ended December 31, 2023, GAIA’s revenue is expected to increase 7.3% year-over-year to $21 million. Over the past six months, the stock has gained 27.2% to close the last trading session at $2.90.
GAIA’s POWR Ratings reflect its promising outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
GAIA has a B grade for Value, Stability, and Sentiment. It is ranked first in the same industry. To access the additional ratings of GAIA for Growth, Momentum, and Quality, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
SKX shares were trading at $64.31 per share on Friday afternoon, up $0.24 (+0.37%). Year-to-date, SKX has gained 3.16%, versus a 1.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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