Nike (NYSE:NKE) is constantly compared to its competition. A few years ago, it was the rising of Under Armour (NYSE:UAA, NYSE:UA) that the media and short-sellers talked about. Last year, it was all about the resurgence of Adidas and how Nike was going to lose on a global scale. But Nike stock is resilient.
Nike has made it through various rhetorics over the years. That much has been proved after shares hit new all-time highs at the end of June. For its part though, Under Armour has done well lately too. Shares hit new 52-week highs in June too, but have been pulling back in recent weeks.
With both stocks overcoming their issues, both are popping up on investors’ radar. It leaves investors with a decision: Nike stock or Under Armour stock?
Valuing NKE and UAA
Like Tesla (NASDAQ:TSLA) now or Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) in the past, the rationale behind owning Under Armour was not its profitability. It was always revenue growth, which was humming along nicely about 20%.
Because of that, Under Armour traded with a ridiculous price-to-earnings ratio, but it no longer sports such lofty revenue growth rates. To that effect, it still does have a high valuation, as shares trade at 122 times this year’s earnings estimates.
Unfortunately, the 18 cents per share analysts expect Under Armour to make this year is a drop from last year’s 19 cents per share. However, estimates call for a 72% surge to 31 cents per share in 2019.
Under Armour will need to build on that momentum to earn investors’ trust. The problem for bulls though? Why buy Under Armour when there’s Nike instead? Yes, Under Armour cleans Nike’s clock when it comes to 2019 earnings growth expectations. But Nike stock has double-digit earnings growth this year and next year and superior revenue growth expectations in 2018 and 2019.
| EPS Growth 18 | EPS Growth 19 | Sales Growth 18 | Sales Growth 19 | |
| NKE |
10.9% |
17.7% |
8.1% |
7.3% |
| UAA |
(5.3%) |
72.2% |
3.9% |
6% |
Additionally, while Nike and Under Armour have similar gross margins, Nike has far superior operating and profit margins. Further, although Nike pays out a somewhat dismissible 1% dividend yield, it’s better than the 0% yield from Under Armour.
Nike trades at roughly 29 times this year’s earnings estimates. Although one could argue this isn’t cheap — and it’s not — it’s the blue-chip company in this segment. One valuation spot where Under Armour beats Nike would be price-to-sales. UAA trades at 1.8 times this year’s revenue estimates, while NKE trades at just over 3 times.
Head to Head: Nike Stock and Under Armour Stock
Let’s take a look at Under Armour stock first, then we’ll look at NKE.
Click to Enlarge
If Under Armour can get above and stay above the $22 level, its chart will look much more constructive. Momentum is in the bears’ favor currently, but could be shifting to the bulls (green circle). Further, shares are not overbought and the RSI could be shifting higher too (blue circle).
Finally, trend-line support (purple line) is nearby and has been in place since February. Should Under Armour start to rally, my first target would be $25, the prior highs from June. Above that and $29 is on the table.
Now let’s look at Nike.
Click to Enlarge
Shares of Nike stock have been slowly but surely trending higher since the October low near $50. Surprisingly, this big-cap stock has rallied some 60% from those lows to its recent highs. Despite solid earnings, Nike stock has had trouble advancing this month.
However, $76 support continues to hold for now. So long as Nike is above this level, its recent highs are on the table. Should they fail, I would love to take a shot at NKE down near $70. That level serves as prior resistance and is now support. Plus, trend-line support should come into play.
The Bottom Line
Neither stock has a terrible-looking chart. From a trading perspective, Under Armour may have more of an edge, but not by much. From a fundamental perspective, Nike takes the cake. It has a better balance sheet, lower valuation and more attractive, stable growth.
Under Armour founder and CEO Kevin Plank can change that rhetoric of course. But for right now, Nike continues to lead the charge.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
