The recreation industry encompasses a wide range of subsectors, including tourism, amusement parks, sports, gaming, fitness, entertainment, and more. This diversity contributes to the industry's resilience, as people consistently turn to leisure and entertainment activities for relaxation and stress relief.

Given the backdrop, it could be wise to take a bullish stance on three fundamentally sound recreation stocks, Brunswick Corporation (BC), Malibu Boats, Inc. (MBUU), and Gaia, Inc. (GAIA), which are trading at a discount relative to their peers.

According to a consumer survey conducted by Winnebago Industries, Inc., Americans are opting for summer travel and recreation plans that focus on the outdoors and road trips. This preference is driven by the desire to enhance mental well-being and counter the increasing expenses associated with flights, accommodation, and car rentals.

In 2022, 82% of Americans participated in outdoor activities like camping, hiking, boating, and visiting state or national parks, up from 60% in 2020 and 79% in 2021. The trend is set to continue in 2023, with 97% of Americans planning to enjoy outdoor activities.

Moreover, the recreational boating market is set to experience growth due to the advancements in autonomous marine technology, making boating accessible to a wider customer base, including less experienced boaters.

The global recreational boat market is expected to witness significant growth, with a projected increase from $18.90 billion in 2023 to $25.90 billion by 2028, reflecting a CAGR of 6.5%.

Despite the disruption due to the global pandemic, the recreation market still shows long-term upside potential. The global recreation market is forecasted to reach $2.19 trillion in 2027, expanding at a 3.7% CAGR.

With such promising trends and opportunities in the sector, investors may find investing in fundamentally sound recreation stocks BC, MBUU, and GAIA worthwhile.

To that end, let us evaluate the fundamentals of the featured stocks in detail.

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.

On July 18, the company announced a quarterly dividend of $0.40 per share on its common stock, payable to its shareholders on September 15, 2023. BC’s annual dividend of $1.60 translates to a 1.87% yield on the prevailing prices, while its four-year average dividend yield is 1.59%.

Its dividend payouts have grown at CAGRs of 18.1% and 15.8% over the past three and five years, respectively.

On May 18, Mercury Marine, a division of BC, formed a partnership with JJE, a prominent provider of electrified propulsion solutions for the automotive industry worldwide. This collaboration aligns with Mercury’s objective of being at the forefront of both internal combustion propulsion and electrification in the marine industry.

By working together, Mercury should be able to broaden its range of electric propulsion solutions and make advancements in higher-powered electric systems.

The stock’s forward non-GAAP P/E of 9.01x is 42.9% lower than the 15.74x industry average. Its forward Price/Cash Flow multiple of 7.43 is 19.7% lower than the industry average of 9.26x. Also, its forward EV/EBIT ratio of 8.41x is 40.8% lower than the industry average of 14.22x.

BC’s net sales for the second fiscal quarter (ended July 1, 2023) stood at $1.70 billion, while its adjusted operating earnings came in at $234.90 million. The company’s net earnings amounted to $134.70 million and $1.90 per share, respectively, in the same period. Also, its earnings before income taxes came in at $171.60 million for the same period.

Street expects BC’s revenue and EPS for the fourth quarter (ending December 31, 2023) to increase 1.1% and 8.2% year-over-year to be $1.60 billion and $2.15, respectively. Moreover, the company has an impressive earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.

Over the past nine months, the stock has gained 22.1% to close the last trading session at $86.31.

BC’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to 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. In the 39-stock Athletics & Recreation industry, it is ranked #7. Click here to see BC’s ratings for Growth, Momentum, Stability, and Sentiment.

Malibu Boats, Inc. (MBUU)

MBUU designs, engineers, manufactures, markets, and sells a range of recreational powerboats. It operates through three segments: Malibu; Saltwater Fishing; and Cobalt. The company provides performance sport boats, and sterndrive and outboard boats under the Malibu, Axis, Pursuit, Maverick, Cobia, Pathfinder, Hewes, and Cobalt brands.

In terms of forward non-GAAP P/E, MBUU is trading at 6.87x, 56.4% lower than the industry average of 15.74x. Its forward EV/EBITDA multiple of 4.56x is 54.4% lower than the industry average of 10x. Also, its forward EV/EBIT ratio of 5.20x is 63.4% lower than the industry average of 14.22x.

MBUU’s net sales for the third quarter of fiscal 2023 (ended March 31, 2023) increased 9% year-over-year to $375.12 million, while its gross profit rose 1.5% from the year-ago value to $98.57 million.

During the same period, the company’s adjusted fully distributed net income and adjusted fully distributed net income per share of class A common stock amounted to $55.35 million and $2.59, respectively. Also, its adjusted EBITDA came in at $79.27 million.

The consensus EPS estimate of $8.52 for the fiscal year 2023 (ended June 30, 2023) represents a 7.7% improvement year-over-year. The consensus revenue estimate of $1.34 billion for the same period represents a 10.5% increase year-over-year.

Also, it surpassed the revenue and EPS estimates in each of its trailing four quarters, which is excellent.

The stock has gained 12.5% year-to-date to close the last trading session at $59.95.

MBUU’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.

It has a B grade for Value. Within the same industry, it is ranked #8. Click here to see MBUU’s ratings for Growth, Momentum, Stability, Sentiment, and Quality.

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.

On February 8, GAIA introduced two new original series: Channeling: A Bridge to the Beyond and Art of Letting Go with Sah D’Simone. In addition to this exciting content release, GAIA formed a partnership with YouTube in late 2022, enabling viewers to directly purchase shows through the channel.

While these series will initially air, they will also be available for download several months later, ensuring viewers can enjoy the content at their convenience.

GAIA’s forward EV/Sales of 0.68x is 64.9% lower than the 1.94x industry average. Its forward Price/Sales multiple of 0.54 is 56.7% lower than the industry average of 1.25x. Also, its forward EV/EBITDA ratio of 3.37x is 61% lower than the industry average of 8.64x.

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.

Analysts expect GAIA’s revenue for the third quarter (ending September 30, 2023) to increase 8% year-over-year to $21.50 million. While its EPS is expected to increase by 90.9% year-over-year for the same period and is further projected to improve by 15% per annum over the next five years.

GAIA’s shares have gained 1.7% over the past month to close the last trading session at $2.35.

It’s no surprise that GAIA has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Value, Stability, and Sentiment. Out of 39 stocks in the same industry, it is ranked #5.

In addition to the POWR Ratings we’ve stated above, we also have GAIA’s ratings for Growth, Momentum, and Quality. Get all GAIA ratings here.

What To Do Next?

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BC shares were trading at $84.56 per share on Tuesday afternoon, down $1.75 (-2.03%). Year-to-date, BC has gained 18.46%, versus a 20.05% rise in the benchmark S&P 500 index during the same period.

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