With All Major Sports Event Canceled, Which Athletic Apparel Stock Still Looks Good: Nike Or Under Armour?

The Coronavirus crisis has hit the apparel industry hard. The companies have had to temporarily shutter their stores and it remains unclear as to when they can open them again, as the pandemic continues to spread, particularly in Europe and the U.S., which are the largest markets for apparel companies. Athletic apparel companies, in particular, have taken investors’ brunt as the cancellation of major sporting events including the Olympics, NBA and Euro 2020 expected to materially impact their top line over the coming months. Under Armour and Nike, two athletic apparel companies with a major stake in global sports events, have seen their stock prices decline by -53% and -11%, respectively, since early February.

Our analysis  Is Under Armour Expensive Or Cheap After A -52.6% Move vs Nike?  compares the stock price performance and fundamentals of the two companies over the last few years, and helps us conclude that Nike is in a much better position than Under Armour to weather the storm.

Despite Under Armour’s Attractive Valuation, Nike Looks The Better Bet

There has been a stark contrast between the fundamental performance of the two companies over the last five years. Although Under Armour’s annualized revenue growth of 11.9% has been higher than that of Nike’s 7.1%, Nike has grown consistently over the years while a bulk of Under Armour’s growth came over 2015-2016. Moreover, Under Armour’s EPS has shrunk 27.2% over the last 5 years while Nike’s EPS has increased 10.9% over this period. Under Armour is currently trading at 40.8x based on last year’s earnings while Nike trades at 26.5x. Although Under Armour’s valuation looks attractive on a historical basis, Nike’s relatively higher cash reserves ($3.1 billion vs about $0.8 billion for UA), and better geographic diversification, could help it cope with the crisis better. Additionally, China – which is Nike’s most profitable geographical segment – has recovered from the impact of coronavirus and looks poised to achieve growth over the coming quarters.

To sum things up, while the overall outlook for both the companies remains uncertain, Nike, given its stronger balance sheet, geographical reach, and a better product portfolio, seems to be in a far better position compared to its smaller rival Under Armour.

Coronavirus Crisis:

• Since early February Under Armour stock has moved -53% compared to a -11% decline for Nike.
• Under Armour’s stock declined 24% while Nike’s stock is down just 3% since March 8th, as U.S. cases accelerated.

Historical Performance: From 2009-2019 Under Armour stock has grown at a comparable rate to Nike stock

• Under Armour stock went from $3.41 at the end of 2009 to $21.60 at the end of 2019, representing a change of 533.4%, driven by stronger revenue growth in the years following the 2008-09 financial crisis.
• During the same time period, Nike went from $14.55 to $101.03 representing a change of 594.4%.

Analysis: 

P/E Ratio:

• Based on trailing 2019 P/E ratios, Under Armour stock looks expensive compared to prior years and somewhat expensive compared to Nike.
• Under Armour’s 2019 trailing P/E ratio of 108x is 2.7x that of the 2019 Nike’s P/E ratio of 39.6x.

Revenue and EPS Growth

• Under Armour’s 2014-19 annualized revenue growth of 12% is roughly 1.7x to that of Nike’s revenue growth.
• However, Under Armour’s 2014-19 annualized EPS growth was -27% compared to a positive 11% growth for Nike.

We also provide a detailed comparison of -28% Coronavirus crash vs. four historic market crashes in a separate interactive dashboard. Additionally, the complete set of coronavirus impact and timing analyses is available here.

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