When the novel coronavirus hit, the public didn’t know what to do. Gyms were closed, sports were cancelled and everyone started stocking up on toilet paper. It was a weird time, but it opened the door for fitness stocks to adapt to the current environment.
Instead of going to the gym, athletes were working out at home. They bought equipment, signed up for streaming services and found alternatives to their favorite routines.
While Covid-19 might have kept the public from getting together, it didn’t prevent people from working out — even if that meant doing so in a different way.
It’s led to acquisitions, explosive growth, huge stock rallies and new products. Of course it has. These companies are some of the most innovative businesses out there. When the situation changes, so do the products and the game plan.
Let’s look at seven fitness stocks that have adapted to the new normal of working out.
- Lululemon Athletica (NASDAQ:LULU)
- Peloton (NASDAQ:PTON)
- Nike (NYSE:NKE)
- Nautilus (NYSE:NLS)
- Apple (NASDAQ:AAPL)
- Garmin (NASDAQ:GRMN)
- Under Armour (NYSE:UA, NYSE:UAA)
Fitness Stocks Built for the New Normal: Lululemon Athletica (LULU)
Lululemon Athletica has been in a solid position for the pandemic. After a year of dealing with the fallout of Covid-19, the reasoning is multi-fold for this observation.
Like most bricks-and-mortar retailers, Lululemon saw a rapid and painful drop in sales as it was forced to close many of its locations. However, it was also one of the first apparel companies to rebound. That’s because of two main reasons: China and its e-commerce unit.
Online sales allowed Lululemon’s customers to seek alternative ways to purchase their favorite outfits. The company’s online unit registered robust growth as a result of its store closures. In regard to China, the country was able to get “back to normal” before most parts of the world, allowing Lululemon’s retail locations in the country to bounce back as well.
It doesn’t stop there, though. While the company benefited from consumers looking to buy workout apparel, the work-from-home crowd was also looking for loungewear and athleisure clothing. That helped spur demand for Lululemon’s products.
Finally, the company acquired Mirror for roughly $500 million. The workout-from-home platform operates like Peloton — only instead of a bike or treadmill, it’s a smart mirror that offers various workouts.
Peloton (PTON)
Speaking of Peloton, how could we not include that on our list of new fitness stocks to watch?
Wall Street went from poking fun at Peloton over the 2019 holiday season to chasing it hand over fist in 2020. Early bulls in this stock had the last laugh as a result, as shares rallied more than 500% from the March 2020 low to the 2020 high.
Lately though, Peloton stock has been struggling. Shares are down over 30% from the highs as investors try to gauge what demand will look like now that the world is returning to a state of normalcy. Bulls remain optimistic on the future. Their thesis revolves around customers who have invested in their Peloton and will continue to pay the monthly subscription fees rather than return to the gym. That’s what gives Peloton its “subscription as a service” angle and it’s why the stock has a higher valuation than a traditional workout equipment company.
While some will surely return to the gyms, many won’t go back if it’s more convenient to workout from home. The booming demand for Peloton has launched the company to heights it likely didn’t think was possible this fast.
Fitness Stocks Built for the New Normal: Nike (NKE)
A stalwart in any fitness discussion, Nike remains a dominant force when it comes to fitness stocks. However, the company has run into some turbulence.
The company is receiving some pushback in China from comments it made regarding forced labor in the cotton industry. Nike’s also facing boycotts as a result. Due to these recent headlines, the stock has struggled for upside traction, flat over the last six months and falling 4% over the last three months. The stock is down about 8.5% from its all-time high.
The dip seems like a buying opportunity.
Analysts expect double-digit revenue growth both this year and next year. That’s alongside almost 100% earnings growth this year and 25% growth estimates for next year.
Whether athletes continue to workout from home or the gym, it doesn’t matter. At least not to Nike. Sports are getting back into action and that should lead to solid year-over-year comps for the company. Plus, where people choose to workout matters a lot less than if they are working out. As long as they are, Nike can continue to grow.
This winner should keep climbing in the years to come.
Nautilus (NLS)
Like Peloton, Nautilus really came to life in 2020 as investors turned their attention to workout-at-home players. Also like Peloton, shares are down big from the highs, currently down about 45%.
Nautilus is a very interesting company. For starters, it makes multiple workout products for at-home use. They include treadmills, upright and recumbent bikes and ellipticals. It also sells products under well-known brands like Bowflex and Schwinn.
What makes this company interesting is the fact that it has two business units: one meant for at-home consumers and one aimed at gyms. The latter is why the stock initially collapsed in March 2020, as investors braced for horrendous financial results. That short-term thinking allowed the stock to soar as investors realized the at-home potential for Nautilus.
The company’s connectivity efforts also makes Nautilus an interesting pick. If it just builds workout equipment, it’s not going to command a very high valuation, even if it does see a strong couple of years of growth. However, if it can build something like what Peloton did — an ecosystem capable of generating recurring revenue — Nautilus could command a much higher valuation from here.
Fitness Stocks Built for the New Normal: Apple (AAPL)
Apple is an excellent consideration for fitness stocks adapting to the new world of workouts. First, the company owns the title for most popular smartwatch, a category that continues to gain momentum.
The watch is capable of tracking dozens of fitness workouts, as well as heart rates, distance, elevation and other workout-related statistics. It’s also waterproof, allowing swimmers to enjoy its benefits too.
However, Apple has gone a step further. In mid-December, Apple launched Fitness+ and it incorporates more than just the Apple Watch — although it certainly helps. From the company:
“Apple Fitness+ brings studio-style workouts to iPhone, iPad, and Apple TV, intelligently incorporating workout metrics from Apple Watch for a first-of-its-kind personalized and immersive experience users can complete wherever and whenever is convenient for them.”
Apple Fitness+ will incorporate everything from yoga, to cycling to HIIT workouts — with many workouts in between as well. This subscription offering should only help fuel the company’s Services revenue, a unit that’s helped power its stock to new heights. Look for Apple’s products to continue revolving around and incorporating personal fitness.
Garmin (GRMN)
Like Apple, Garmin is a popular wearables company but one that gets much less attention. Many know Garmin for its vehicle GPS units, a product that has been rendered mostly useless due to our smartphones.
However, in-car navigation systems, as well as marine and aerial GPS systems continue to benefit Garmin. Regarding its role as a fitness company, Garmin makes a ton of different wearable options, ranging from the more fashionable to the more powerful.
Garmin’s products are geared at users who do it all. Those that run and cycle are obvious users of its products. But so are those that hunt, dive and even golf (seriously, the golf one is pretty cool). Talk to some cyclists. They’ll swear by Garmin’s capabilities and won’t push a pedal without it.
While it doesn’t receive the same fanfare as some of its competitors, there’s little doubt Garmin is a top-notch product. It’s also made updating maps and adding apps simple, allowing the products to be as accurate as possible.
Fitness Stocks Built for the New Normal: Under Armour (UAA)
While Nike stock has been trading relatively well, Under Armour has struggled. At least on the longer time horizons. Over the past year though, shares have traded quite well and are currently changing hands near new 52-week highs. The stock is up an impressive 124% from the 2020 lows, however, it’s still down more than 50% from its all-time highs in 2015.
Despite this lumpy performance, Under Armour is an interesting investment near these levels. The company has invested a ton of money by acquiring technology startups and businesses in hopes of making fitness more connected. While that’s wasn’t a response to the pandemic, it’s a play on the direction of working out and integrating technology. From the company:
“Join our mission to make all athletes better with the technology to train, perform, and achieve greatness. With over 30 million users, our platform is ready to help you ignite a fitness revolution.”
Under Armour’s technology allows for 24/7 activity tracking, 700-plus workouts and a social community. While many may consider Under Armour a second-place finisher to Nike, it has potential moving forward.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
