- Due to consumers being more conscious about their body image, sportswear brands are thriving.
- Sponsorship deals have been key for Under Armour's growth.
- Financials show that Under Armour has strong momentum.
Sportswear brands have enjoyed strong growth in recent years due to western consumers being more conscious about their body image. At the forefront of this growth is Nike (NYSE:NKE) and Under Armour (NYSE:UA).
Nike is a company steeped in history. Its Air Jordan range is a right of passage for young urban youth, and it is so desirable that people are willing to commit criminal acts in order to have it in their wardrobe. Plus, with huge advertising, Nike has great brand recognition.
On the other hand, there is Under Armour: a comparatively new kid on the block gunning to be number one. With Under Armour stock outperforming Nike stock year to date, the threat to Nike is real and growing.
In order to analyze which one is a better buy option, it is vital to compare them on some key elements.
Nike Vs Under Armour : Financial Analysis
In order to put the financials of these two companies into context, it is worth noting that Under Armour's IPO was in 2006, compared to Nike's in 1980.
Under Armour's earnings have grown at 3.28 times the rate of Nike earnings over the past five years. This can be attributed to the fact that Under Armour has been on a spree of signing successful sports people to sponsorship deals and using them as leverage to sell product. Nike works on a similar marketing strategy; however Under Armour has been trying to beat Nike to the signature.
For instance, Under Armour signed Stephen Curry to a shoe deal in 2012 for $4,000,000. Stephen Curry went on to win a Championship and was crowned an MVP. As a result, an Under Armour branded trainer "The Curry One" went on to net Under Armour $158,000,000 in just 3 months.
This strategy of "getting them early and cheap" then cashing in on them when they are performing well is working well.
Additionally, Under Armour's five year growth rate stands at 29.2% compared to Nike's 10%. This encapsulates the momentum surrounding Under Armour as a brand. Perhaps, consumers are so used to Nike that there is a sentiment to want something different.
In terms of market cap, Nike's is more than 4-times that of Under Armour ($98bn vs $22bn). Although Under Armour is far behind in this regard, when it comes to investing don't let this metric change your decision. When it comes to investing, percentage growth rate is of utmost importance. And at this point in time, Under Armour has more momentum than Nike.
Interestingly, Under Armour offers its athletes equity in the profits they help generate. In comparison, Nike offers no such deal for athletes. As a result, not only are athletes more committed to promoting the Under Armour brand, but for upcoming athletes Under Armour can seem like a more attractive endorsement deal.
Both Nike and Under Armour are interested in growing their brand in emerging markets, one of which being China. This will be key to growing earnings for each company. China is a huge market with a growing middle class- the perfect storm for selling $100+ sneakers. However, due to the fact that e-gaming is big in China, both companies will have to change the kind of 'athletes' they offer endorsement deals to.
Plus, with the Olympics coming next year, there is a huge opportunity for Under Armour to expand its reach and establish itself as a global brand. Signing athletes likely to be successful in the future would be key to its success.
In conclusion, although Under Armour has greater momentum in the marketplace, Under Armour stock from January 2015 till date has proven to be more volatile than Nike stock. The brand recognition of Nike is unparalleled, and they continue to develop highly desirable products. Moreover, Nike's earnings per share is approximately four times that of Under Armour.
Under Armour is a brand to have a steady eye on, but for now Nike is a safer stock to buy for long term growth.