If anything positive can be said about the coronavirus pandemic, it’s that it caused a lot of people to take their health more seriously. Smoking, obesity, and unhealthy lifestyles in general are all risk factors for COVID-19. Many people took that as a sign it was time to clean up their act.
Coupled with the fact that being locked down at home gave them more leisure time and made them want to get outside more, suddenly the great outdoors became just that, a great place to be.
The Outdoor Industry Association says 8.1 million more people hiked in 2020 than they did in 2019; freshwater fishing saw participation grow more than 8%, adding 3.4 million new anglers to the sport; and camping surged 28% with 7.9 million more people spending a night outdoors.
Perhaps more importantly, over 60% of those who started or resumed some outdoor activity during the pandemic — whether it was walking, biking, fishing, or jogging — intend to continue once restrictions are lifted. [see attached file]
The following four stocks were some of the biggest beneficiaries of that escape to the wilderness and will benefit immensely from the sustained interest in outdoor activities.
Academy Sports & Outdoors
Academy Sports & Outdoors (NASDAQ: ASO) isn’t a household name yet, but that’s likely to change soon. Despite being in business since 1939, the sporting goods and outdoor activities retailer only went public in October of last year and it hit the ground running.
Shares were offered at $13 each and more than tripled in value as they hit an all-time high of over $41 a share earlier this month.
Sales jumped 18% last year to a record of $5.7 billion, and it’s continuing that pace this year with a 39% gain in the first quarter compared to last year, helping to generate the highest gross profit in the company’s history. It ended up boosting its full-year earnings guidance to $4.15 to $4.50 per share from its prior outlook of $2.70 to $2.95 per share, up 14% at the midpoint from 2020.
As CEO Ken Hicks told Yahoo Finance, “People picked up a new hobby and they’re doing more of it.”
Despite the phenomenal gains, Academy Sports still trades at less than seven times trailing earnings and just over nine times next year’s estimates. With analysts forecasting the sporting goods store to grow earnings 42% annually for the next five years, the stock goes for a small fraction of its earnings growth rate and its sales. It looks like a homerun in the making.
American Outdoor Brands
American Outdoor Brands (NASDAQ: AOUT) is another stock new to the market, having been spun off from Smith & Wesson Brands (NASDAQ: SWBI) after the firearms manufacturer chose to become a gun stock pure play again.
Third quarter earnings back in March showed sales jumped 91% year over year and gross margins jumped by 110 basis points to over 45%, as it saw sales in each of its four brand channels, representing some 20 different brands, experiencing strong growth.
In addition to sporting goods equipment, American Outdoor also services the shooting sports industry, but with a focus on Smith & Wesson brands, which isn’t surprising due to its firearms pedigree.
That also gave it another avenue of lift for sales, since along with people going outdoors more, they were buying firearms at a record rate. The National Shooting Sports Foundation says 8 million people bought their very first firearm last year, which obviously leads to a need to purchase accessories and ancillary equipment like scopes, laser grips, and more.
American Outdoor Brands opened at $16.15 a share when it began trading on the Nasdaq exchange last year and it peaked earlier this month at $33.50, a nice double. But like Academy Sports, the stock offers investors a discount, trading at less than 15 times next year’s earnings estimates; and with outdoor activities and shooting sports on a sharp upward trajectory, look for American Outdoor Brands to be on target to gain.
Dick’s Sporting Goods
Dick’s Sporting Goods (NYSE: DKS) took a different route than Smith & Wesson by divesting itself of almost everything having to do with firearms. Although it still operates a handful of hunting-oriented Field & Stream stores, hunting will only remain in around 100 Dick’s and Field & Stream stores when it’s finished restructuring, which is expected to be completed at the end of this month.
While that means Dick’s has missed the boom in firearms, it replaced the category with new ones that generated more profits. And despite all of its stores being closed in March, April, and May last year, it was still able to record a 9.5% increase in sales from 2019 with a record 10% jump in comparable sales. That was achieved because of Dick’s strong e-commerce platform, which represented 30% of total sales last year compared to 16% the year before.
Like its peers above, it is seeing strong growth this year too, with first-quarter sales rocketing 119% higher and e-commerce sales more than doubling. Team sports have been a critical part of Dick’s business, one obviously crushed by the COVID-19 outbreak last year, but also one which is seeing a resurgence this year as kids take the field again.
As the biggest player in the space, Dick’s Sporting Goods also presents investors with a stock with discounted valuations, and with its stock trading at less than four times the free cash flow it produces, it represents a bargain basement opportunity.
Vista Outdoor (NYSE: VSTO) is an amalgam of its peers. While it shed its firearms business two years ago, it remains deeply entrenched in the soaring gun market as it is the manufacturer of the industry-leading Federal Premium ammunition brand.
Record-breaking gun sales has turned into a massive ammo shortage that has not let up. A combination of outsized demand from existing firearms owners plus the millions of new ones brought in last year, along with supply chain issues that affect the availability of commodities necessary for the manufacture of ammunition, and you have what might be the mother of all shortages for the industry.
Vista, though, also owns some of the leading brands in other outdoor activities, including hydration systems maker Camelbak, Camp Chef outdoor cooking gear, Bushnell rangefinders, Giro cycling helmets, and more.
It should also be able to dovetail into the twin trends of spending more time outdoors and growing firearms ownership, and giving investors a chance to buy in at a discounted price.
Vista Outdoor’s stock, which has tripled in value over the past year, goes off at less than 10 times trailing earnings, 12 times estimates, and less than eight times its free cash flow. While you’re spending time in the great outdoors, Vista’s stock could be taking your portfolio to uncharted territory.
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