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.

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.