Is Under Armour (UA) a Better Stock than Nike (NKE)?
Nike’s (NKE) mission is to ‘bring inspiration and innovation to every athlete’ and the company has been very successful in doing that over the years. However, the relatively new Under Armour (UA) has also had success in this market and is starting to challenge NKE is some key areas of its business.
Yet, while UA has definitely surged in recent years, NKE still has a commanding lead in the market. However, many are starting to wonder if Nike’s dominance of the space is meant to last, or if the upstart can one day unseat Nike.
And if Nike will retain its huge market, many are wondering where will UA make its inroads and can it possibly challenge NKE in one of its most dominant markets, basketball? Additionally, how big is NKE’s lead in sales and revenue? Which company is more popular across the globe with the masses?
We will need to examine each one of the companies carefully to answer the aforementioned questions and concerns, in addition to drawing a conclusion over which stock is better for investors.
Nike’s Prospects
NKE has become a master at design, development, marketing, and retail of sportswear and fashion wear, including apparel, footwear, equipment, accessories, and services. It manufactures and sells a different host of products for varying sports and purposes. Almost everyone has seen NKE’s swoosh logo, and there is no doubt NKE has etched itself in the world of retail.
Nike Basketball
NKE has maintained control over most of the basketball market, which is arguably the most popular sport in the US. Almost 99% of all basketball players wear NKE sneakers, and many of them are sponsored for huge sums of money by Nike, which markets and sells its products and services through a fun and interactive online store, but also through many brick-and-mortar locations as well.
NKE manufactures and markets many basketball shoes to the fans and shoe aficionados who are crazy for the glittery leather design and logo. Some shoes in the past have been sold out immediately upon their release, and some shoes have even become collectibles, like the renowned Nike Air Yeezy 2 Red Octobers, which currently go for a wild price tag of up to $6000 (that’s almost eight times more than what a Louis Vuitton loafer would go for).
It is also worthwhile to note that Nike distributes its products not only through its stores, but also through department stores, such as Macy’s, Finish Line, and many others, while Under Armour does not. Of course, that has to do with the size of the two companies, and it is no surprise considering how Nike’s market cap stands at $68.54 billion, while Under Armour’s market cap is about $14.80 billion. However, we should mention that investors do not really care about the size of a brand but rather its success, popularity, sales, revenue, and profit.
Soccer
Germany’s national football team was the winner at the FIFA World Cup 2014, leaving many teams in its dust. Another question though, is who won the sponsorship war this time? The answer is Nike.
Nike outfitted 10 teams during the tournament, while German multinational Adidas AG (not traded publicly in the US, but rather on XETRA, one of Germany’s stock exchanges) only outfitted 9 teams. It was however, an Adidas World Cup final, as Germany faced off against Argentina, and won towards the end of the match, though Goetze’s boots were NKE, which was contractually not legal.
NKE’s first goal in the history of World Cups was in 1982, before that, Adidas had reigned supreme when it came to the FIFA World Cup (commonly referred to Soccer World Cup in US). In other words, NKE has certainly bridged the gap in football, but is not king, as FIFA and Adidas signed a deal valid until 2030, worth about $70 million per four year cycle, which will allow Adidas to design all World Cup memorabilia and the tournament’s football.
Under Armour’s Prospects
Under Armour (UA) is trying its hardest to dethrone long reigning sportswear king, Nike. Many people see Under Armour strictly as an American brand, and rightfully so. Having lived in different regions around the world, I can safely say that Nike has the upper hand by a very long shot when it comes to international markets, only facing resilient opposition from Adidas.
Very recently, UA has been planning to acquire larger slices of the basketball footwear market, by trying to pull one of the NBA’s brightest stars, Kevin Durant, from Nike’s grasp. UA is looking to attract hype as the company offers around $285 million over a span of 10 years to Durant, in hopes of swaying him to their side.
The deal would reportedly include UA shares, and other benefits, including a community center built in Durant’s mother’s name. According to the deal offer though, NKE has the option to match UA’s proposal, so this deal isn’t set in stone yet. Acquisition and sponsorship of a player of such high caliber would no doubt put NKE in a precarious position, as the sportswear behemoth may suffer a dent in its reputation, seen by many basketball fans as unbeatable for a very long time.
Comparison
An important aspect to think about is how UA’s prices compare to NKE’s expensive price tags. Wondering through a NKE store, it isn’t hard to stumble on a pair of $150 shoes, however UA is known for having competitive and cheaper prices, and that is definitely an appealing factor for any youth to think about before considering a NKE purchase.
Is a pair of NKE running shoes really worth $150? Or is it just brand marketing and overpriced? I tend to lean towards the latter; however most of my sportswear purchases have been from NKE. It just seems that NKE has that everlasting brand design and look, that seems to appeal to everyone, regardless of age, or gender.
Financials/Bottom Line
Both stocks, UA, and NKE, currently maintain a Zacks Rank #3 (Hold), however, NKE seems to be having a better rating according to Deutsche Bank’s analysts, most possibly due to its World Cup sponsorships and sales, which will arguably be announced soon in NKE’s conference call on September 25th.
NKE has managed to effectively come out on top of its EPS estimates for a very long time now, and so has UA. We will see how things shape up for these two giants next quarter.
Nike has mustered $7,425 million in sales, and a gross profit of $3,385 million, with a net income of +$691 million. NKE had a diluted net EPS of $0.76/share, and has a forward P/E ratio of 23.23. On the other hand, UA made sales worth $609.65 million, however the company’s net income was paltry at best, as a reported +$17.69 million was the total net income, which was still a nice improvement from their previous quarter. UA’s gross profit for last quarter was $299.95 million. UA had a diluted net EPS of $0.08/share, and has a forward P/E ratio of 73.94.
Analysts have revised and lowered their EPS estimates for the current quarter, from $0.93/share to $0.89/share about 60 days ago for NKE, and it is the same negative trend for UA, for which analysts revised and lowered their estimates for the current quarter, from $0.42/share to $0.40/share about 30 days ago.
UA just met earnings estimates last quarter while NKE had 2.25% negative EPS surprise. It is important to note that UA surprised by 50% for the quarter ending on 3/2014, whilst NKE only surprised by 4.11% on its quarter ending on 2/2014.
From the financial results and analysis, we can see how NKE remains the dominant brand for sportswear, at least on the national and international level. NKE has continued to pursue its mission of innovating and inspiring, and there is no doubt that it will continue to do so for a long time.
UA, on the other end of the spectrum, remains more of a mystery, will Durant accept their multi-million dollar offer, or will he stick with NKE? It seems like UA is having a hard time competing with NKE, but time will tell whether we will see a change or not.
Still, UA remains a very attractive stock for long-term investors, especially since it has the potential to surprise, while NKE is a much bigger brand with $27 billion in revenue, compared to UA’s tiny $3 billion revenue. NKE, on the other hand, isn’t likely to just give up control of its key markets without a fight, and could be planning attacks on UA’s key markets too.
It is also worth noting that there are better sports/shoe wear investments out there, like for example, Skechers (SKX), which currently maintains a Zacks Rank #1 (Strong Buy). In the mean time, investors should hold on to their NKE and UA stocks and look out for earning revisions and see if it is wise to dump the stocks before taking a likely penalty ahead of next earnings season.
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