Lululemon vs Under Armour Stock: Which Is Best?

Lululemon vs Under Armour Stock: Lululemon has been touted as the potential next Nike brand. While it might only be a quarter of the size of Nike, it’s four times the size of its other competitor, Under Armour. In other words, Lululemon stock has far outshined most analysts’ most optimistic predictions since it came public.

In a sputtering economy, the cream of the crop tends to rise to the top – and even during a worldwide pandemic, Lululemon is proving it can hold its own – and then some.

If you’re already a shareholder, that’s great news. Lululemon has grown exponentially over the past ten years.

While the company began as a niche producer of women’s yoga wear, they’ve since expanded to offer sportswear for men and even everyday clothing. In just the past five years alone, Lululemon stock price has increased by over 250%.

Globally speaking, the world is wide open for small sportswear makers such as Lululemon and its rival, Under Armour. But today’s economy is grim – so, which of the two stocks is the best buy right now?

Lululemon Business Strategy Is A Winner

Lululemon Athletica [LULU] bounced back well after the initial fall due to coronavirus fears. This was due in part to analyst predictions that the company’s stock will prove resilient over the long term.

Some analysts boosted their price targets by as much as $100 per share, and increased their profit estimates for 2020.

Although most recent top and bottom line figures have been lackluster, the lagging figures are merely transitory, according to Wall Street analysts, and indicate that the company’s business strategy has put them in favorable positioning to be the leader in athletic apparel.

Over the long term, Lululemon is positioned well to come out on top, thanks to their constant and stunning innovation, loyal customers, and strong online presence. These are all meaningful pillars on which to expand an already strong empire and illustrate why the company’s stock has risen almost 25% just since January.

In fact, Lululemon’s pivot has been perfectly seamless. With the company focus on athletic and leisure clothing, this brand value is a key advantage over other sportswear companies – more and more consumers are working from, attending meetings via Zoom, and generally taking their health and wellness more seriously – something Lululemon is poised to capitalize on.

Analysts project that Lululemon’s gross margins might see pressure in the near future, but that the company won’t have to enact markdowns, clearance sales, or other usual aspects of a downturned economy.

This is due simply to the fact that the company’s clothing isn’t seasonal. Plus, having control over its supply chain puts Lululemon Athletica head and shoulders above its competitors.

Overall, investors focus on incremental changes – even the smallest of upticks are looked at favorably.

It seems likely that Lululemon will continue on this upward trend and many analysts say there’s still plenty of room for this stock to grow.

Is Under Armour More Risky?

On the other side of the spectrum Is Under Armour [UA] – a company that’s predicting a drop in sales for 2020.

Under Armour has been grappling with how to introduce consumers to its line of training shoes and sweat-wicking shirts. Management is predicting up to a $60 million loss in sales due to the pandemic just in 2020 Q1, which will likely hurt UA stock price.

The last few months have been especially difficult for Under Armour. It already faced challenges of keeping up with competitors like Lululemon and Nike. Analysts claim it’s the forced lockdowns around the world that have really crippled revenue streams.

And because clothing stores were deemed non-essential businesses, Under Armour had to close all brick-and-mortar shops, effectively losing their foot traffic sales.

Add to this that gyms are closed and all professional and amateur sports have been cancelled – so, expecting a huge jump in online sales isn’t in the cards for Under Armour.

But this decline can’t entirely be blamed on the pandemic – the company wasn’t in the greatest standing prior to the virus.

For at least the past two years, Under Armour’s sales have been under pressure. While the company saw steady, quarterly growth in revenue over 20% over a twenty-year span, its first loss was recorded in 2017.

In the US, Under Armour competes with not only Lululemon, but also with Adidas and Nike. These brands not only make workout clothing with high performance value, but also gear that’s fashionable – and often, at lower prices than Under Armour.

Under Armour also depends heavily on its wholesale partners whereas some of its competitors sidestep the middle-men and go directly to consumer as often as possible.

Following its Q4 2019 revenue report, Under Armour’s shares plummeted by 17%.

Early February 2020 wasn’t too bleak, but by April, share prices for Under Armour lost a further 60%. As other brands and indexes bounced back, Under Armour has remained relatively stable with share prices still down over 50%.

Lululemon vs Under Armour Stock: The Bottom Line

It’s fair to say Lululemon is much stronger competitively. Its product quality and ability to bypass middlemen allows for better profits and gives the company the perception of premium quality and care about its loyal customers. T

his is best reflected in the valuation of its stock – which happens to be quite a bit higher when compared to that of Under Armour.

While Under Armour might seem more attractive for other reasons – it’s cheaper at first glance – it’s probably not a buy for now. Lululemon’s operational advantages are simply too great to ignore. Of the two, Lululemon is arguably the better buy at present.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.