The sports and athletics market is expected to grow as a result of improved health awareness and government initiatives, while the industry is positioned to survive a potential downturn as a result of rising event popularity and technological advancements.
While popular athletic footwear and apparel powerhouse NIKE, Inc. (NKE) has been an investor favorite for a long time, given the near-term concerns related to its financials and strict regulations impacting its business, I think Gaia, Inc. (GAIA), Brunswick Corporation (BC), and Skechers U.S.A., Inc. (SKX) are better positioned to capitalize on the industry’s prospects.
NKE’s shares have lost 13.7% over the past six months to close the last trading session at $102.36.
However, the stock is trading at a lofty valuation. Its forward EV/Sales multiple of 2.94 is 148.1% higher than the 1.18 industry average. Also, its forward Price/Sales multiple of 2.91 is 230.4% higher than the industry average of 0.88.
In addition, NKE reported disappointing fourth-quarter results. The company’s net income came in at $1.03 billion, down 28.4% year-over-year. Also, its EPS decreased 26.7% year-over-year to $0.66. So, it could be wise to wait for a better entry point in NKE.
On the other hand, according to Allied industry research, the sports apparel industry is expected to reach $410.8 billion by 2032, rising at a CAGR of 6%. Sports apparel is gaining popularity in emerging markets as the purchasing power increases. Also, increased consumer acceptance of fitness activities such as aerobics, swimming, jogging, and yoga drives market expansion.
Also, the global athletic footwear market is expected to reach $180.20 million by 2031, with a 4.6% CAGR. This expansion can be attributed to a variety of factors, including increased engagement in sports and fitness activities, increased health consciousness among individuals, and the emerging trend of athleisure 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: Gaia, Inc. (GAIA)
GAIA is a digital video subscription service and online community for the underserved member base internationally. The company’s network includes a Yoga channel, which provides access to yoga, eastern arts, and other movement-based classes, and a Transformation channel that offers content in the areas of spiritual growth, personal development, consciousness, etc.
GAIA’s forward EV/Sales of 0.76x is 58% lower than the 1.82x industry average. Its forward Price/Sales multiple of 0.62 is 48% lower than the industry average of 1.19x.
GAIA’s trailing-12-month gross profit margin of 86.24% is 74.7% higher than the 49.37% industry average. Its trailing-12-month asset turnover ratio of 0.59x is 21.1% higher than the 0.48x industry average.
For the second quarter, which ended June 30, 2023, GAIA’s net revenue amounted to $19.84 million, while its gross profit stood at $17 million.
In the same period, the company’s total current assets came in at $17.23 million, increasing marginally compared to $17.17 million as of December 31, 2022. In addition, its adjusted EBITDA amounted to $3.07 million.
The consensus revenue estimate of $82.80 million for the year ending December 2023 represents a marginal increase year-over-year. Its EPS is expected to grow 46.7% for the same period. GAIA’s shares have gained 2.1% year-to-date to close the last trading session at $2.43.
GAIA’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.
GAIA has a B grade for Stability, Value and Sentiment. Within the Athletics & Recreation industry, it is ranked #7 out of 39 stocks. Click here for the additional POWR Ratings for Growth, Momentum, and Quality for GAIA.
Stock #2: Brunswick Corporation (BC)
BC is engaged in designing, manufacturing, and marketing recreation products worldwide. It operates through three segments: Propulsion; Parts & Accessories; and Boat. Its product portfolio includes outboard, sterndrive, and inboard engines for independent boat builders, electrical products, boat parts and systems, engine oils, and lubricants.
BC’s forward non-GAAP P/E multiple of 8.56 is 43.7% lower than the industry average of 15.20. Its forward EV/EBIT multiple of 8.09 is 41.1% lower than the industry average of 13.73.
BC’s trailing-12-month ROCE of 27.09% is 147.1% higher than the industry average of 10.96%. Its trailing-12-month net income margin of 8.21% is 90.8% higher than the industry average of 4.30%.
BC’s net sales for the second fiscal quarter that ended July 1, 2023, came in at $1.70 billion. The company’s net earnings amounted to $134.70 million and $1.90 per share, respectively, in the same period.
BC’s current liabilities came in at $1.39 billion for the period that ended July 1, 2023, compared to $1.49 billion for the period that ended December 31, 2022. Its total liabilities and shareholders’ equity came in at $6.29 billion, compared to $6.32 billion for the same period.
Analysts expect BC’s revenue to increase 2.7% year-over-year to $6.90 billion for the year ending December 2024. Its EPS is expected to grow 8.4% year-over-year to $10.28 for the same period. It surpassed EPS estimates in three of four trailing quarters. The stock has gained 9.9% over the past year to close the last trading session at $81.24.
It’s no surprise that BC has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Value and Quality. It is ranked #5 in the same industry.
Beyond what is stated above, we’ve also rated BC for Growth, Stability, Sentiment, and Momentum. Get all BC ratings here.
Stock #1: 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.
SKX’s forward EV/Sales multiple of 1.11 is 6.1% lower than the industry average of 1.18. Its forward EV/EBIT multiple of 11.66 is 15.1% lower than the industry average of 13.73.
SKX’s trailing-12-month net income margin of 6.11% is 41.9% higher than the 4.30% industry average. Its trailing-12-month ROCE of 13.08% is 19.3% higher than the 10.96% industry average.
SKX’s sales increased 7.7% year-over-year to $2.01 billion in the second quarter that ended June 30, 2023, while its gross profit rose 18.2% from the year-ago value to $1.06 million.
Its net earnings grew 69% and 69% from the prior-year quarter to $152.80 million and $0.98 per share, respectively. Also, its earnings from operations increased 41.2% from the year-ago value to $217.70 million.
Street expects SKX’s revenue to increase 9.2% year-over-year to $8.13 billion for the year ending December 2023. Its EPS is expected to grow 43.5% year-over-year to $3.41 for the same period. It has surpassed EPS estimates in three of four trailing quarters. Over the past year the stock has gained 37.4% to close the last trading session at $51.56.
SKX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #3 in the same industry. It has a B grade for Growth, Value and Sentiment. To see additional SKX’s ratings for Stability, Momentum and Quality, click here.
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NKE shares were trading at $100.67 per share on Tuesday morning, down $1.69 (-1.65%). Year-to-date, NKE has declined -13.15%, versus a 18.50% 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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