A few years back, the athletic apparel industry converged on lifestyle trends, and athleisure was born. Ever since, athletic apparel stocks have been red hot, and they aren’t showing any signs of cooling off any time soon.
Over the past five years, the sportswear market in the U.S. has grown at a 6.5% compounded annual growth rate, significantly outpacing the overall apparel and footwear market’s growth rate of just 2.5%. Consequently, the athleisure style has morphed into the largest category in the U.S. sneaker market, according to NPD group. Meanwhile, according to Piper Jaffray’s Taking Stock With Teens survey, athletic apparel brands have been, still are, and will remain the most popular footwear and apparel brands among U.S. teens.
All in all, athletic apparel has been the trend in the retail world. And, considering mind-share and sales growth in this category are only accelerating higher, the end of this trend is not in sight.
As a result, now is a good time to own some red hot athletic apparel stocks ahead of what promises to be a huge holiday season and amid still favorable athleisure growth trends. Without further ado, let’s meet those red hot athletic apparel stocks.
Red Hot Athletic Apparel Stocks: Nike (NKE)
Nike (NYSE:NKE) is the undisputed king of this industry. No one else on this list, which includes the biggest athletic apparel names in the world, has revenues in excess of $30 billion. Nike’s revenues are closing in on $40 billion.
Time and time again, Nike has reminded investors and consumers alike of its unprecedented dominance in the athletic apparel space. Over the past several years, several smaller brands have tried to take share from Nike. At first, all those brands had some success. Ultimately, though, Nike always punched back with more innovation and more investment, thwarted the rising threat, and reclaimed lost market share.
Because Nike has managed to sit atop the athletic apparel industry for so long, it is starting to feel like a given that this company dominates this industry for the next decade-plus, and perhaps longer. Right now, Nike is in the early stages of some major changes, including pivoting to a direct sales model, streamlining investment into urban centers, integrating technology into the shopping experience, and accelerating product innovation to unprecedented rates. Meanwhile, Nike is still supported by the broadest and most robust athlete portfolio in the world, and athlete endorsements are what truly fuel athletic apparel brands.
Overall, the Nike story is good and only getting better. NKE stock sold off during the October stock market rout. That selloff is a buying opportunity. This stock will ultimately bounce back from near-term weakness because the long-term fundamentals are rock solid.
Red Hot Athletic Apparel Stocks: Adidas (ADDYY)
The one brand that has had the most success gaining share on Nike is Adidas (OTCMKTS:ADDYY). That is why this company is the only other athletic apparel company in the world that is almost as big as Nike (~$26 billion in sales, versus for ~$37 billion for Nike, and everyone else on this list is below $10 billion).
The Adidas uptrend started a few years back with the mainstream emergence of athleisure. Adidas capitalized on this. Realizing that the high-performance sportswear market was drying up, Adidas pivoted to become a lifestyle brand. They started making shoes with broad appeal — shoes that consumers would wear as a fashion statement and for comfort, rather than for performance. Alongside this product shift, Adidas also shifted its image, by recruiting lifestyle celebrities like Kanye West to help reinvent the brand in the public eye as more than an athletic apparel company.
It worked. Adidas has been one of the fastest growing athletic apparel brands in the world for several years now. This resurgent popularity has waned some as Nike has punched back. But, not entirely. Adidas still grew revenues by 8% last quarter.
Overall, the golden era of Adidas is over, but this company is appropriately positioned for growth going forward given its leadership status in the athleisure category. ADDYY stock has been range bound for a while now, as the valuation got ahead of fundamentals amid the hyper-growth stage and is now cooling off to more reasonable levels. Eventually, this cooling off will end. When it does, ADDYY stock will become a buy.
Red Hot Athletic Apparel Stocks: Lululemon (LULU)
Perhaps the hottest, albeit one of the smaller, athletic apparel companies in the world is Lululemon (NASDAQ:LULU). This company has entirely reinvented itself over the past three years, and as it has, sales have climbed over 40% to nearly $3 billion.
In its early days, Lululemon made a killing as a premium retailer of women’s yoga apparel. But, as it turns out, that market isn’t all that big. Once Lululemon fully dominated that market, growth started to dry up. So, Lululemon broadened their business, increased product assortment, and expanded consumer reach. Today, Lululemon is gradually shifting from niche premium women’s yoga apparel retailer, to broad premium men and women’s athletic apparel retailer.
Lululemon is still in the early innings of this shift. After all, the company has a sales base of only $3 billion, versus $25 billion-plus at Adidas and nearly $40 billion at Nike. While it is a long shot that Lululemon becomes as big as Adidas or Nike some day, current growth rates (revenue +25% last quarter) imply that Lululemon is on track to be a $5 billion to $10 billion business one day.
Overall, Lululemon is transforming into a brand with much wider reach and a bigger customer base. Ultimately, this shift will drive revenues, profits, and LULU stock higher. As such, while LULU stock can often get too hot from time to time, the long-term uptrend should remain in tact for the foreseeable future, and big dips should be viewed as buying opportunities.
Red Hot Athletic Apparel Stocks: Under Armour (UAA)
The story of Under Armour (NYSE:UAA) is much different than the stories of the other athletic apparel stocks on this list.
Under Armour was once the hottest name in the whole athletic apparel industry. Thanks to a burgeoning basketball business and strong athlete endorsements, Under Armour was the envy of the whole industry back in 2014-15. But, that growth proved to be unsustainable. The North America business maxed out at a really early stage, and growth went negative. Meanwhile, growth in the International business cooled dramatically, and threatened to follow in North America’s footsteps. Margins got wiped out. Net result? UAA stock plunged from $50 to $10 in two years.
Now, though, Under Armour is starting to show signs of life again. The North America business is stabilizing. The International business is finding its footing at 15%-plus growth rates. Margins are bouncing back. The whole Under Armour story, while still not that great, is starting to improve against the backdrop of still surging athletic apparel popularity.
Overall, Under Armour is a company that popped and dropped, and is now trying to pop again. Caution is warranted when it comes to this second pop. The fundamentals supporting UAA stock, while improving, aren’t all that great, and the stock is up huge year-to-date (+90%). As such, UAA stock is a buy when the price is right. But, at current levels, the UA price isn’t right.
Red Hot Athletic Apparel Stocks: Skechers (SKX)
Often neglected by consumers and investors alike, Skechers (NYSE:SKX) has managed to be one of the fastest growing and most underappreciated athletic apparel stocks in the world.
Skechers is often viewed as the neglected little brother in the athletic apparel industry. After all, there isn’t really anything all that special about the company or the product. The product isn’t exciting, as Skechers sells very regular athletic apparel shoes at very average price points. The athlete portfolio backing the brand isn’t all that special (while Nike has LeBron James and Christiano Ronaldo, Skechers has Tony Romo). Meanwhile, the company isn’t that big, with under $5 billion in sales. And, growth is big, but not Lululemon big.
Overall, there are reasons why investors forget about SKX stock. But, they shouldn’t. As it turns out, the mid-price athletic sneaker market is huge globally, and there isn’t much competition. Consequently, Skechers has consistently been one of the fastest growers in this industry over the past several years. Margins have been a problem which have held back the stock, but those margin headwinds are on the opex front, not the gross margin front. Thus, management can scale back opex at any point, and profits will jump.
Overall, Skechers is the most underappreciated athletic apparel company in the world. Likewise, SKX stock is the most undervalued athletic apparel stock on this list. SKX stock trades at just 16x forward earnings. Everyone else on this list trades at a forward multiple in excess of 30. Thus, SKX stock is unreasonably cheap, and should outperform from current levels.
As of this writing, Luke Lango was long NKE, LULU, and SKX.