In the current market environment, investment strategy has to be dynamic. When the pandemic was at its peak, indoor entertainment stocks and healthcare stocks were out-performers. As the economy reopens with the support of an aggressive vaccination drive, outdoor stocks are likely to be in focus. This might include travel and leisure activities, like mall shopping and theme park visits, as well as casinos and live events.
Retailers have already been anticipating a post-pandemic consumption boom. According to Moody’s Analytics, Americans were “holding were holding $2.6 trillion in excess savings as of mid-April.” This is likely to manifest itself in the form of higher spending on outdoor activities in the coming quarters.
It’s also worth noting that people have sought more health-conscious ways to spend time. An integral part of this is outdoor activity and leisure travel.
With these potential trends, it’s a good time to remain (or to get) invested in outdoor stocks. This column will discuss four outdoor stocks that have run-up in the recent past and look good for further upside.
Let’s take a deeper look into the following stocks.
- Six Flags Entertainment (NYSE:SIX)
- Johnson Outdoors (NASDAQ:JOUT)
- Norwegian Cruise Line (NYSE:NCLH)
- Eventbrite (NYSE:EB)
Post-Pandemic Outdoor Stocks: Six Flags Entertainment (SIX)
As a regional theme park company and the largest operator of waterparks, Six Flags is attractive as the economy reopens. SIX stock has trended higher by 40% in the last six months. As park traffic increases, the stock is poised for further upside.
Currently, Six Flags operates 27 parks in the United States. Further, the company has two parks in Mexico and one in Canada.
For the first quarter of 2021, Six Flags reported $82 million in revenue and attendance of 1.3 million. The number of guests were lower by 822,000 as compared to Q1 2019. With an aggressive vaccination drive, Six Flags is likely to witness steady growth in traffic in the next few quarters.
It’s worth noting that in Q1 2019, the total guest spend per capita was $48.48. This has increased to $56.16 in Q1 2021. Therefore, as traffic increases, the company is positioned for healthy EBITDA margin and cash flows.
The company is also working on modernizing the guest experience and driving operational efficiency. This is also likely to support EBITDA margin expansion.
Overall, SIX stock is among the top outdoor stocks to consider. As peak traffic (pre-pandemic level) is gradually achieved, the stock is likely to trend higher.
Johnson Outdoors (JOUT)
JOUT stock is another attractive name among outdoor stocks. After touching highs of $154 in April 2021, the stock has corrected to current levels of $121.2. At a forward price-to-earnings ratio of 15.1, the stock seems positioned for renewed upside.
As an overview, Johnson is a manufacturer and seller of camping, diving, watercraft and marine electronics products. As people seek increased outdoor activity, the company’s products have been witnessing strong demand.
For Q2 2021, the company reported sales of $206.2 million, which was higher by 26% on a year-on-year basis. Watercraft, fishing and camping segment contributed to revenue growth. The diving segment revenue was flat. However, with economic reopening and higher outdoor activity, all these key segments are likely to contribute to growth.
It’s worth noting that for Q2 2021, the company reported an operating profit margin of 17.5%. As sales accelerate, the operating margin is likely to improve.
The company is well-positioned for healthy cash flows. Further, as of Q2 2011, Johnson Outdoors reported $186.9 million in cash buffer. Therefore, there is ample financial headroom to sustain dividends and invest in growth.
Norwegian Cruise Line (NCLH)
NCLH stock has also been in an uptrend as the markets discount potential revival of the cruising industry. With positive news related to the resumption of cruising, the stock is likely to remain in an uptrend.
The company recently announced the return of cruising in the United States. Cruise to Alaska is expected to commence in August 2021. Further, the company also announced the return of voyages across all three brands.
From a financial perspective, the company reported cash and equivalents of $3.5 billion as of March 2021. Therefore, the company is positioned to navigate the period of cash burn. It’s likely that cash burn will decelerate in the coming quarters as voyages resume.
It’s also worth noting that the company currently has 28 ships with 60,000 berths. An additional 24,000 berths are likely to be added through FY2027 with the addition of nine ships. I am therefore positive about the long-term outlook.
The company does have debt of $12.2 billion as of Q1 2021. It seems likely that Norwegian Cruise can de-leverage beyond FY2023. According to Carnival Corporation’s (NYSE:CCL) CEO, full recovery in cruising is unlikely before FY2023. Positive free cash flows for de-leveraging are therefore likely in the next two years.
Eventbrite is a “self-service ticketing and experience technology platform.” The company is involved in the planning, promotion and production of live events.
It goes without saying that the pandemic translated into a sharp drop in live events.
However, there is a gradual recovery and it’s a good time to consider EB stock. To put things into perspective, the company reported revenue of $8 million in Q2 2020. Revenue has gradually increased to $28 million in Q1 2021 as live events and concerns make a comeback.
In terms of potential growth, the total paid ticket volume in Q1 2020 was 22 million. For Q1 2021, the paid ticket volume was 10 million. If ticket volumes return to pre-pandemic levels, the revenue can double. With significant pent-up demand for outdoor events, it’s likely that revenue recovery will be strong in the next few quarters.
It’s worth noting that as of Q1 2021, the company had a robust liquidity profile of $358 million. In November 2020, the company acquired ToneDen, which helps creators attract and grow their audience. Given the cash buffer, the company is positioned to invest to accelerate organic and inorganic growth.
The pandemic has also triggered a broader company focus towards live and virtual events. This can potentially imply higher growth in the coming years.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.