With a global consumer base of loyal sports fans, many investors see professional sports brands as solid investments but sports leagues and brand apparel can also suffer from economic shocks.
In a booming economy, people are more likely to spend on entertainment. When the tide turns, sports investments can be high risk bets.
Before rushing in to these types of investments, you’ll want to know the pros and the cons of the brand you want to get behind. No business is risk-free, and no investment either.
Here we examine two of the biggest brands: Nike, and Under Armour. We compare the two sporting giants and see what factors you should consider before making any financial investment decisions.
Should You Buy Or Sell Nike Stock?
Nike (NYSE: NKE) has global reach. As far afield as China, Nike’s sales have been steadily rising 35% in the fourth quarter year over year. With the winter Olympics scheduled for 2022 in Beijing, and fitness being a growing trend in Greater China, the demand for branded sports apparel has only risen. Nike’s Greater China market is the brand’s second-largest.
Millennials and younger-generation consumers who have inherited wealth see certain brands, such as Nike, as luxury statements. The company invests heavily in their global marketing of athlete endorsers, while appealing to their consumers on a personal level. Those investments are expected to pay off, with estimates of $6.5 billion in revenue by 2020.
When compared to Under Armour, Nike is the more competitively advantaged and commercially strategic business.
Nike Dividends Vs Under Armour Dividends
If we were to look at financial strength, we would see that Nike’s sales are seven times larger than those of Under Armour. Netting around $1.9 billion per year makes Nike a stiff competitor.
Nike has a cash flow budget of $2.54 billion; Under Armour lists just $43 million, putting it much lower.
Because of this cash flow, Nike can afford to reward shareholders with dividends. In contrast, Under Armour does not pay out dividends. Its cash flow is reinvested for operating budget. In 2019, Nike’s revenue is projected to rise by 8.1%, while Under Amour’s growth is capped at about 6.8% in 2019.
Is Nike A Value Stock?
For value investors, NKE stock doesn’t quite fall within a reasonable target range. Its starting dividend yield is a mere 1.0%, so it will take a lot of dividend growth before buying the Nike dividend as a value investor makes sense.
Is Under Armour Stock Worth Buying?
Although Under Armour managed to top revenue estimates, it only had 6% year-over-year growth, with sales in its North American markets falling slightly. There are also suggestions that Under Armour has piled up an inventory amounting to $1.1 billion.
This could explain why Under Armour (NYSE: UAA) has offered big clearance discounts. It is something to watch out for as an investor. Internationally, however, Under Armour has seen a better climb: 27% growth overseas on the quarter.
Under Armour’s earnings, while they have beat expectations, are still on the lower end of the scale. Even though they managed to top revenue estimates, their small 6% year-over-year growth is not too appealing for investors.
Nike: The Colin Kaepernick Ad
Short-term the share price of Nike has been choppy. Its shares dropped 3 percent on Sept. 4 after the company featured former San Francisco 49ers quarterback Colin Kaepernick in its latest ad campaign.
The controversial athlete who was the first player to kneel during the national anthem, may have helped the brand make waves, but it also caused a boycott. Although many athletes, including LeBron James and Kevin Durant, showed their public support for the sports brand, Nike market capitalization ended up dropping by around $3.75 billion.
That said, NKE stock is still up nearly 30 percent this year, and Under Armour 20 percent. So, politics aside, a tiny blip should not account for that much when looking at the overall growth picture of their stock.
Some analysts expect 8.8% earnings growth and 9.3% sales growth.
Because Nike has been in the business longer than Under Armour, the Nike share price decline following the Kaepernick campaign likely will not put a dent in overall earnings.
Nike Stock Vs Under Armour Stock Summary
The bottom line is Nike has a stronger competitive position and greater financial strength than does Under Armour.
It has greater revenue growth and likely ranks as a better investment. With its direct-to-customer push, the sports giant is still outshining may top sports industry brands, including Under Armour.
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.