Amid the growing health awareness, people are increasingly indulging in sports and physical activities. Moreover, government initiatives to encourage physical activity are increasing. U.S. Department of Health and Human Services’ (HHS) Healthy People 2030 is the 10-year plan for addressing the most critical public health priorities and challenges.
The program aims to improve health and well-being by helping people of all ages get enough aerobic and muscle-strengthening activity. These initiatives should boost the sports and athletic goods market. According to Persistence Market Research, the global sports and athletic market is estimated to grow at a 5.5% CAGR from 2023 to 2033.
Furthermore, experts believe the sports goods industry could withstand a recession amid today’s digital media and marketing. Finch’s infrastructure and project finance director, Henry Flynn, said, “There is a lot of revenue predictability on the sports side, which helps weather a potential storm.”
Given the industry’s promising outlook, it could be wise to add fundamentally strong athletic stocks Brunswick Corporation (BC), MasterCraft Boat Holdings, Inc. (MCFT), and Gaia, Inc. (GAIA) in 2023. However, Latham Group, Inc. (SWIM) might be best sold short now, considering its weak fundamentals.
Stocks to Buy:
Brunswick Corporation (BC)
BC designs, manufactures, and markets recreation products worldwide. It operates through Propulsion; Parts & Accessories; and Boat segments.
On January 4, 2023, BC launched Veer, an all-new boat brand designed to enable electric propulsion and appeal to the future generation of boaters, and the X13, the first model in the Veer line-up, adding to the company’s product portfolio.
In terms of forward EV/Sales, BC is currently trading at 1.14x, 4% lower than the industry average of 1.19x. Its forward Price/Sales of 0.84x is 9.8% lower than the industry average of 0.93x.
BC’s trailing-12-month ROCE of 33.40% is 158.3% higher than the 12.93% industry average. Its trailing-12-month ROTA of 10.40% is 129% higher than the 4.54% industry average.
BC’s net sales came in at $1.70 billion for the third quarter that ended October 1, 2022, up 19% year-over-year. Its net earnings came in at $163.8 million, up 14.5% year-over-year, while its EPS came in at $2.20, up 20.2% year-over-year.
Analysts expect BC’s revenue to increase 2.8% year-over-year to $7.09 billion in 2023. The stock’s EPS is estimated to grow 4.9% year-over-year to $10.49 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past three months, the stock has gained 15.5% to close the last trading session at $79.61.
BC’s POWR Ratings reflect this promising outlook. The company 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.
BC has a B grade for Growth and Quality. Within the Athletics & Recreation industry, it is ranked #6 out of 37 stocks. Click here for the additional POWR Ratings for Value, Sentiment, Momentum, and Stability for BC.
MasterCraft Boat Holdings, Inc. (MCFT)
MCFT designs, manufactures, and markets recreational powerboats. The company operates through four segments: MasterCraft; Crest; NauticStar; and Aviara.
On November 9, 2022, Fred Brightbill, CEO, and Chairman said, “We are proud of our excellent start to fiscal 2023. Despite macroeconomic volatility and the dynamic business environment, we achieved the best first quarter in the company’s history.”
In terms of forward EV/Sales, MCFT is currently trading at 0.86x, which is 27.7% lower than the industry average of 1.19x. Its forward Price/Sales of 0.84x is 10% lower than the industry average of 0.93x.
MCFT’s trailing-12-month ROCE of 53.99% is 317.6% higher than the 12.93% industry average. Its trailing-12-month ROTA of 18.42% is 305.6% higher than the 4.54% industry average.
MCFT’s net sales and revenues came in at $169.52 million for the first quarter that ended October 2, 2022, up 29.7% year-over-year. Its gross profit came in at $45.97 million, up 50.3% year-over-year, while its operating income came in at $32.22 million, up 96.7% year-over-year.
Street expects MCFT’s revenue to increase marginally year-over-year to $608.56 million in 2024. The stock’s EPS is estimated to grow 10% per annum for the next five years. It surpassed EPS estimates in all four trailing quarters. Over the past six months, the stock has gained 31.6% to close the last trading session at $28.55.
It’s no surprise that MCFT has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, and Quality.
MCFT is ranked #2 in the same industry. Click here for the additional POWR Ratings for MCFT (Stability, Sentiment, and Momentum).
Gaia, Inc. (GAIA)
GAIA operates a digital video subscription service and online community for underserved members in the United States, Canada, Australia, and internationally.
On November 8, 2022, Paul Tarell, CFO, said, “The third quarter continued to be impacted by the trends that developed in the spring. Consumers shifted their attention and spending to travel and recreational activities, which affected our ability to cost-efficiently add new members.”
In terms of forward EV/EBITDA, GAIA is currently trading at 4.06x, 53.4% lower than the industry average of 8.71x. Its forward Price/Sales of 0.86x is 34.9% lower than the industry average of 1.31x.
GAIA’s trailing-12-month gross profit margin of 86.47% compared with the 50.32% industry average. Its trailing-12-month EBITDA margin of 19.65% is significantly higher than the 19.05% industry average.
GAIA’s current assets came in at $16.7 million as of September 30, 2022, compared to $14.98 million as of December 31, 2021. Its total assets came in at $136.86 million, compared to $133.68 million for the same period.
For 2023, GAIA’s revenue is expected to increase by 6% year-over-year to $87.41 million. Its EPS is estimated to grow 141.7% year-over-year to $0.05 in 2023. The stock has gained 45.5% over the past three months to close the last trading session at $3.39.
GAIA has an overall rating of B, equating to a Buy in our POWR Ratings system. It has a B grade for Value, Stability, and Sentiment.
It is ranked #5 in the same industry. To access the additional POWR Ratings for GAIA (Growth, Momentum, and Quality), click here.
Stock to Avoid:
Latham Group, Inc. (SWIM)
SWIM designs, manufactures, and markets in-ground residential swimming pools in North America, Australia, and New Zealand. It offers a portfolio of pools and related products, including in-ground swimming pools, pool covers, and pool liners.
SWIM’s trailing-12-month P/E multiple of 58.51 is substantially higher than the 14.15 industry average. Also, its trailing-12-month Price/Cash Flow multiple of 46.85 compares with the industry average of 13.81.
SWIM’s trailing-12-month net income margin of 1.01% is lower than the industry average of 5.18%, while its trailing-12-month negative Levered FCF Margin of 1.69% is lower than the industry average of 1.31%.
SWIM’s current liabilities came in at $115.92 million as of October 1, 2022, compared to $115.17 million as of December 31, 2021. Its total liabilities came in at $522.47 million, compared to $440.84 million for the same period.
SWIM’s revenue is expected to decrease 15.7% year-over-year to $582.19 million in 2023. Its EPS is slated to fall 56% year-over-year to $0.22 in 2023. SWIM shares have lost 81.2% to close the last trading session at $3.80.
SWIM’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to Sell in our proprietary rating system. It also has a D for Stability. It is ranked #32 in the Athletics & Recreation industry.
Beyond what is stated above, we’ve also rated SWIM for Value, Growth, Sentiment, Momentum, and Quality. Get all SWIM ratings here.
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BC shares were unchanged in premarket trading Friday. Year-to-date, BC has gained 10.45%, versus a 3.80% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
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. More...
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