Anyone scanning recent Stock Exchange announcements from the leisure sector might struggle to explain why it became the single worst performer in the second half of last year – down 19 per cent – and why it has again fared so badly in the year to date: off a further 22 per cent since January, outpacing a 9 per cent retreat in the FTSE all-share index. Only banks, retailing, telecoms and automotive suppliers have fared worse.

Trading among hotel operators in Europe and Asia has held up well, revenues from cruise ships remain above recent rates of growth – as was confirmed by this week’s second-quarter results from Carnival, the owner of Cunard and P&O Princess – and package-tour operators insist that summer bookings remain strong: up 8 per cent in Britain, according to last month’s figures from TUI Travel.

One of the sector’s highest-profile constituents even triggered upgrades to its full-year profit forecasts: Whitbread, the owner of Premier Inn and Costa Coffee, in filing a better than expected 7.1 per cent rise in first-quarter like-for-like sales.

It is only among Britain’s quoted pub operators that there are obvious signs of strain, with the likes of Punch Taverns having reported that trading has been hurt by tighter consumer spending. However, clear year-on-year comparisons have been clouded by the introduction of the smoking ban in England and Wales – the first anniversary of which is about to fall – and, more recently, an increase in beer duty.

Of course, the stock market works as a discounting mechanism, whereby a downturn in trading is factored into share prices long before its first signs emerge. Even so, with leisure stocks now trading on just nine times next year’s forecast earnings – a valuation level they last touched in the trough between 2001 and 2003, in the wake of September 11 and the run-up to war in Iraq – could now be the time to turn more positive?

Not only has nine times foward earnings proved a low point in the past, but it represents a 46 per cent slide from last year’s peak multiple of nearly 17 times to what might appear bargain-basement levels.

ABN Amro thinks not. The broker contends that 2009 and 2010 profit forecasts for the sector remain too high, and that we may be only two thirds of the way through the full share price correction. Having cut next year’s forecasts by 13 per cent, it now expects the sector’s earnings to fall 5 per cent in 2009.

In short, ABN Amro suggests that the resilient trading reported to date is due to a lag effect, and finds it hard to believe that demand will not slacken over the next 12 months.

Leisure-related spending is notoriously cyclical, and on all available evidence the cycle is turning against it: business and consumer confidence is weakening, and inflationary pressures in Western economies indicate that interest rates could rise even at a time when GDP growth is slowing.

For London hotels, for example, index-adjusted revenue per available room – the key industry barometer – remains 21 per cent above the peak it reached at the turn of the decade, suggesting it has considerable scope to fall.

There are other concerns. Leaving fuel aside, two other significant elements of the sector’s cost base are on the rise: food, for which inflation is running at between 5 per cent and 8 per cent, and wages, with the UK minimum wage due to increase another 4 per cent in October alongside extra holiday pay. With the economy weakening, companies may find it increasingly difficult to recover these costs, putting margins under pressure.

The leisure sector is also characterised by relatively high levels of operational gearing, whether through a significant proportion of fixed or semi-variable costs – such as lease commitments in the case of high street bookmakers – or low operating margins. For the sector as a whole, ABN Amro estimates that a 1 per cent fall in sales translates into a fall in operating profits of between 3 per cent and 4 per cent.

Finally, the private equity-style financial engineering of the past few years has left many of the sector’s constituents with uncomfortably high levels of balance sheet leverage – a phenomenon most pronounced among pub operators. It is no accident that the two companies whose shares have fallen the most over the past 12 months are those with the greatest financial gearing: Punch and Mitchells & Butlers, which have ratios of net debt to forecast operating profits of 7.4 and 5.8 respectively.

So, assuming it may yet get worse, who are the relative winners?

Among hotels, ABN Amro picks out Intercontinental Hotels Group, owner of the Crowne Plaza and Holiday Inn chains, which has sold more than £3 billion of assets since the last downturn. Now, more than 80 per cent of this year’s forecast operating profits are derived from managed and franchised hotels, implying a low level of operational gearing. Of tour operators, TUI, formed from last year’s tie-up between Thomson and First Choice, stands out, given the scope for postmerger cost savings and the ability to cut capacity in line with demand. Finally, ABN Amro cites Compass Group, the contract caterer and the sector’s only constituent whose shares have advanced year on year. It believes further efficiency gains – the company cut £100 million of costs in its last financial year – should help to offset pressure on like-for-like sales.

And the losers? Still the pubs. On the assumption that profits will be quick to fall in a downturn and slow to recover, there could be more froth yet to be blown off.

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