There’s a battle for the women’s market raging right now between Nike Inc (NKE) and Under Armour Inc (UA). And while both companies show explosive growth, only one of them will emerge as the stock to buy in this article.
Together, the two companies delivered gains of 50% to its shareholders in 2015, with Nike stock bettering its upstart competitor for the first time since 2009.
Both Under Armour and Nike stock carried a lot of momentum into 2016. The question is, can they keep it going? The quick answer is: Yes, yes they can. That said, investors ought to focus their attention on just one of them.
A Value Perspective on UA and Nike Stock
Nike and Under Armour currently trade above historical norms, which is important to keep in mind whether you buy Nike or UA stock. Why? Because you’re not necessarily getting a great deal owning either of them.
Nike trades at 3.5 times sales, almost 50% higher than its five-year average. Under Armour stock is similar, trading at 5.1 times revenue, or 24% higher than its five-year average. By multiples alone, UA is more expensive; but if you consider their five-year averages, Nike is actually worse given that Under Armour Inc is a younger, still-growing company.
However, when you compare NKE’s price-earnings growth ratio to UA’s, regardless of UA’s projected growth advantage, Nike’s valuation is definitely less frothy. For this reason, investors looking for growth at a reasonable price will likely gravitate more to Nike stock, while growth investors will be caught by Under Armour stock’s pull. Value investors, however, are left out in the cold.
From the professional perspective, Pete Najarian, the co-founder of optionMonster.com, appeared on CNBC Jan. 30 to discuss Under Armour’s earnings performance. While UA is definitely still in growth mode, Najarian is cautious about UA stock.
“Those two [UA, LULU] both, to me, still have incredible growth stories behind them and obviously with Lululemon (LULU) you have a margin expansion that they were just talking about … If we get any kind of a pullback in Under Armour stock, that would be an opportunity. But I don’t think you want to chase it.”
It seems NKE and UA are falling all over themselves in a push to win over the female customer while Lululemon is trying to do the same with men, leaving many to wonder why one of them doesn’t just buy LULU and kill two birds with one stone.
Under Armour CEO Kevin Plank sees the women’s category being potentially bigger than its men’s business. That’s a good thing if you’re a UA shareholder. Media Post contributor Sarah Mahoney reminded Marketing Daily readers recently that Under Armour stock has lost some of its zip in recent months due to the company’s failure to generate enough buzz (and revenue) with women.
So where is Under Armour when it comes to women?
According to Conlumino, a retail industry research and consulting firm, UA’s women’s business accounts for $1.14 billion of its $3.83 billion in overall revenue, or 30% of the take. The consultant estimates that UA will pass LULU women’s business (estimated at $1.72 billion) sometime in 2017.
“Interestingly Lululemon is trying to grow the men’s side, however, while it is having some success I think it is much more of a challenge for it to do this than it is for Under Armour to move into women’s,” wrote Conlumino CEO Neil Saunders in an email to Business Insider.
Its women’s business was good for $5.7 billion globally in fiscal 2015, representing 22% of its overall wholesale revenue, approximately 25% less in percentage terms than Under Armour. Both swear up and down that they’ll be able to grow their women’s business exponentially over the next five to 10 years.
Given Nike stock’s head start, I’m inclined to believe UA’s got the momentum when it comes to this all-important category. To the winner will definitely go the spoils.
Bottom Line on Under Armour and Nike Stock
One of the most important factors money managers look at when evaluating a company’s stock is its management team, placing significant emphasis placed on the CEO.
UA has Kevin Plank while Nike has Mark Parker. Street & Smith’s Sports Business Journal named Parker its 16th most influential person in 2015; Plank came in slightly behind at 23rd, but rising.
Both of them are clearly good at what they do.
At the end of the day, I truly believe the visionary Plank will deliver more shareholder value over the next three to five years than the professional manager, albeit a good one.
For this reason, Under Armour stock is the better buy.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.