The global rise in sports and fitness interest is boosting the athletic industry’s prospects. 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 consider buying fundamentally strong athletic stocks, Skechers U.S.A., Inc. (SKX), American Outdoor Brands, Inc. (AOUT), and Vista Outdoor Inc. (VSTO).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the athletic industry is well-positioned for growth.
The athletic industry is experiencing a robust resurgence, driven by a surge in Americans prioritizing physical and mental well-being. Outdoor activities such as camping, fishing, surfing, skiing, climbing, and skateboarding have rebounded after the pandemic. This increased participation is fueling significant growth in both the recreation industry and the sports retail sector.
Engaging in outdoor activities in nature and playing a sport has been shown to have positive effects on overall health and emotional well-being. According to the ClassPass 2023 Look Back Report, there was a 92% increase in sports and recreation bookings over the previous year, with golf being the fastest-growing activity, followed by football, soccer, and tennis.
Furthermore, the global sports equipment market is expected to generate $172 billion in revenue in 2024 at a projected annual growth rate of 5.9%. 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 at a growth rate of 6.9%.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Athletics & Recreation industry picks, beginning with the third choice.
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 51.90% is 45.6% higher than the 35.64% industry average. Likewise, its 1.11x trailing-12-month asset turnover ratio is 12.6% higher than the 0.98x industry average. Additionally, the stock’s 9.81% trailing-12-month EBIT margin is 30.6% higher than the 7.51% industry average.
For the fourth quarter that ended December 31, 2023, SKX’s adjusted sales came in at $1.93 billion. Its adjusted gross profit rose 7.8% over the prior-year quarter to $1.02 billion. Also, the company’s net earnings attributable to SKX stood at $75 million and $0.48 per share, respectively, up 31.6% and 29.7% year-over-year.
Street expects SKX’s EPS for the quarter ending March 31, 2024, to increase 7.9% year-over-year to $1.10, and its revenue for the same quarter is expected to increase 10% year-over-year to $2.20 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 35.3% to close the last trading session at $59.38.
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. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value and Quality. It is ranked #3 out of 35 stocks in the Athletics & Recreation industry. To see SKX’s Growth, Momentum, Stability, and Sentiment 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.
In terms of the trailing-12-month gross profit margin, AOUT’s 45.90% is 28.8% higher than the 35.64% industry average. Likewise, its 11.01% trailing-12-month levered FCF margin is 97.9% higher than the 5.56% 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 ended 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. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 5.4% to close the last trading session at $8.57.
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 same industry, it is ranked #2. Click here to see AOUT’s ratings for Momentum and Stability.
Stock #1: 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 23, 2024, Foresight Sports, a brand under VSTO, unveiled the QuadMAX at the 2024 PGA Show. The QuadMAX offers golfers advanced features like a touchscreen display, customizable data, internal memory, and enhanced performance analysis for an innovative and accurate experience.
In terms of the trailing-12-month EBITDA margin, VSTO’s 13.97% is 28.2% higher than the 10.90% industry average. Likewise, its 13.15% trailing-12-month levered FCF margin is 136.4% higher than the 5.56% industry average. Furthermore, the stock’s 7.60% trailing-12-month Return on Total Capital is 25.9% higher than the 6.04% industry average.
VSTO’s net sales for the fiscal third quarter ended December 25, 2023, came in at $682.25 million. Its adjusted gross profit came in at $202.85 million. The company’s adjusted net income stood at $46.69 million and $0.80 per share. Moreover, its adjusted EBITDA stood at $93.50 million.
For the quarter ending June 30, 2024, VSTO’s EPS and revenue are expected to increase 3.3% and 2.1% year-over-year to $1.16 and $707.90 million, respectively. Over the past three months, the stock has gained 16.4% to close the last trading session at $29.97.
VSTO’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary system.
It is ranked first 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.
What To Do Next?
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SKX shares were trading at $60.20 per share on Friday afternoon, up $0.82 (+1.38%). Year-to-date, SKX has declined -3.43%, versus a 6.92% 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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