- Under Armour stock price is down recently while that of rival Nike is up.
- Under Armour is growing faster and has a more efficient endorsement strategy.
- The Under Armour stock is pricey, but Under Armour is leading the fashion charge towards active wear.
Under Armour (NYSE:UA) is a clothing company that sells like a tech stock.
This means it is expensive. Trading at nearly six times sales – a market cap of near $18 billion supporting annual revenues of barely $3 billion. But you are also getting the growth of a tech stock – revenues rose 32% from 2013 to 2014, and should be up nearly 25% this year, especially if Christmas is as good as some think.
Some includes me. Under Armour has created a fashion niche in what was once considered a utilitarian category, athletic apparel. This has shifted the entire clothing market. Fashion companies like Nordstrom (NYSE:JWN) and Macy's (NYSE:M) in women’s wear, and Men's Wearhouse (NYSE:MW) in men’s wear, are getting killed by the trend of wearing athletic clothing to work and around town.
Recently the prime beneficiary has been Nike (NYSE:NKE), which is due to report earnings on December 22. The company’s August quarter – nearly $1.2 billion in profit on $8.4 billion in revenue – has sent Nike stock soaring 14% over the last three months. During the same year Under Armour stock price is down 13.5%.
This has more to do with market fashions than it does with financial performance. Nike’s year-over-year growth is still less than 10%. Under Armour’s is closer to 30%. But Nike pays a dividend, and while the yield is just 1% the 28 cents was covered many times over by $1.34/share in net income. Nike is also hiking that dividend slightly, buying up $12 billion in shares (on a market cap of $107.6 billion) and splitting the stock.
Financial engineering of this type is great for shareholders, but it’s not the kind of thing you can do every quarter. This means to me that Under Armour shares are about to play catch-up.
Under Armour clothes are known to be more form-fitting than other brands. It’s a younger label, and it’s young people who buy fashion. Their endorsement strategy is also more nuanced. While Nike has LeBron James, for instance, Under Armour has Steph Curry. While Nike has USA Soccer, Under Armour has stars Jermaine Jones and Kelley O’Hara. Nike has Tiger Woods, Under Armour has Jordan Speith. Nike has Sportswoman of the Year Serena Williams, Under Armour has rising star Sloane Stephens. Under Armour also has both Tom Brady and his wife, Giselle Bundchen. Under Armour is simply more efficient.
The fashion wind is also at Under Armour’s back. I suspect that when the company announces its Christmas earnings, on February 3, it’s going to open some eyes. I think they’re going to sell out. And that means you won’t find Under Armour shares in the remainder bin in late January. Take advantage of their low ebb and put some on your shopping list, especially on days when the market tanks in a flight to safety.