{"id":532551,"date":"2024-04-08T14:05:23","date_gmt":"2024-04-08T18:05:23","guid":{"rendered":"https:\/\/financhill.com\/blog\/?p=532551"},"modified":"2024-04-08T13:06:11","modified_gmt":"2024-04-08T17:06:11","slug":"nike-vs-under-armour-stock","status":"publish","type":"post","link":"https:\/\/financhill.com\/blog\/investing\/nike-vs-under-armour-stock","title":{"rendered":"Nike vs Under Armour Stock, Which Is Best?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">The sportswear industry struggled last year with high inflation affecting consumers\u2019 discretionary spending on sportswear. <\/span><span style=\"font-weight: 400;\">As a result, shares of <\/span><b>NIKE, Inc. (<\/b><a href=\"https:\/\/financhill.com\/stocks\/sp500\/nke\"><b>NYSE:NKE<\/b><\/a><b>)<\/b><span style=\"font-weight: 400;\"> and <\/span><b>Under Armour, Inc. (<\/b><a href=\"https:\/\/financhill.com\/stocks\/sp500\/ua\"><b>NYSE:UA<\/b><\/a><b>) <\/b><span style=\"font-weight: 400;\">experienced sustained declines, down 18% and 22% year-to-date, respectively.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">But the worldwide sportswear market is expected to return to a growth trajectory soon and <\/span><a href=\"https:\/\/www.globaldata.com\/newsletter\/details\/strategies-for-sportswear-success-with-market-set-to-reach-587-2bn-by-2027_170720\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">expand at a 5.9% CAGR<\/span><\/a><span style=\"font-weight: 400;\">, so which of these two stocks will make the faster recovery?&nbsp;&nbsp;&nbsp;&nbsp;<\/span><\/p>\n<p><iframe loading=\"lazy\" style=\"margin: 0 auto; border: 0;\" src=\"https:\/\/financhill.com\/widget\/charts\/NKE?defaultOverlays=EMA20%2CSMA50&amp;periodGrouping=daily&amp;defaultSeries=candlesticks\" width=\"720\" height=\"440\" frameborder=\"0\" scrolling=\"no\" seamless=\"\"><\/iframe><\/p>\n<h2><b>Is NIKE Stock Worth the Premium?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Following the 2020-21 period, Nike shifted focus to speeding up its e-commerce and direct-to-consumer businesses, which resulted in higher sales. Buzz grew as it ventured into the metaverse and virtual marketplaces too.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, the stock\u2019s 16.5% loss over the past year reflects investors\u2019 disappointment in the company&#8217;s slower growth and poor guidance. While revenue expanded at a CAGR of 10.2% over the past three years, analysts expect it to grow marginally in FY 2024 and by only 2.4% in FY 2025.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Like other consumer-facing companies, NIKE grapples with scarce demand and constrained expenditures amid high inflation. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Weak sales continued to impact its top line during the holiday quarter (which ended February 29) but were partly offset by favorable pricing. In the fiscal third quarter, revenues stood<\/span><a href=\"https:\/\/investors.nike.com\/investors\/news-events-and-reports\/investor-news\/investor-news-details\/2024\/NIKE-Inc.-Reports-Fiscal-2024-Third-Quarter-Results\/default.aspx\" target=\"_blank\" rel=\"noopener\"> <span style=\"font-weight: 400;\">at $12.43 billion<\/span><\/a><span style=\"font-weight: 400;\">, almost unchanged from last year, though it topped estimates by 1.1%.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The bottom line shows NIKE &#8216;s net income at $1.17 billion compared with the $1.24 billion reported in the year-ago quarter. However, it had a solid gross margin of 44.8%, up 150 basis points year over year. It has also been reducing inventory levels.<\/span><\/p>\n<h2>Nike&#8217;s Plan To Dominate<\/h2>\n<p><span style=\"font-weight: 400;\">The sneaker manufacturer is on the path to recovery. While its Consumer Direct Acceleration Strategy has yielded returns, management thinks adjustments are necessary. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Firstly, the company is sharpening its abilities toward driving innovation across its product range and \u201cbolder and more distinctive\u201d brand marketing approach.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">NIKE intends to pursue sustainable growth by reconfiguring its portfolio over the next few months. More importantly, the company wants to build strong wholesaler relationships to solidify its moat and bolster growth initiatives.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If these restructuring plans are successful, financial woes may become a rearview mirror concern, even if near-term pressures persist.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Despite the slowing business, the Board has not compromised its tradition of rewarding shareholders. In the third quarter, the company returned $562 million through dividends and $866 million via share repurchases.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The company\u2019s 22 consecutive years of increasing dividends and a reasonable payout ratio of 39.3% ensure its dividend remains as safe as can be. Its forward annual dividend of $1.48 yields 1.67%.&nbsp;&nbsp;<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Despite declining over the past year, the NKE\u2019s valuation looks expensive, especially considering its so-so growth prospects. The stock trades at 24x times non-GAAP forward earnings, at a high premium to its industry peers. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The weak growth prospects make it trade at a price-earnings-to-growth (PEG) of 2.06x, about 30% higher than the industry average.<\/span><span style=\"font-weight: 400;\">&nbsp;&nbsp;<\/span><\/p>\n<h2><b>Can Under Armour Grow its Market Value Further?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Over the past few years, Under Armour has strengthened its market position by adopting a more consumer-centric approach and introducing innovation across its product lines.&nbsp;<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Like most of its rivals, the sportswear brand has been grappling with slowing sales as broader economic factors affected the industry. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Under Armour is seeing softer demand in North America, just one of the 100 countries in which it operates but the one that accounts for most of its total revenues. Weakness in wholesale business was a primary driver, representing about 59% of its net revenues in fiscal 2023.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The demand weakness led to the company reporting a<\/span><a href=\"https:\/\/about.underarmour.com\/content\/ua\/about\/en\/stories\/press-releases\/release.24056.html\" target=\"_blank\" rel=\"noopener\"> <span style=\"font-weight: 400;\">6% year-over-year decline in revenue<\/span><\/a><span style=\"font-weight: 400;\"> in the fiscal third quarter ended December 31. Its net income for the quarter came in at $114.1 million, compared to $121.6 million in the year-ago period. Adjusted EPS was $0.19, above its anticipated range of $0.09 to $0.11.&nbsp;&nbsp;<\/span><\/p>\n<h2>Is a Turnaround Coming?<\/h2>\n<p><span style=\"font-weight: 400;\">Although the company faces challenges, it has also been seeking a turnaround, just like NIKE, but emphasizing the U.S. market. Under Armour outlined a growth strategy labeled \u201c<\/span><a href=\"https:\/\/www.retaildive.com\/news\/under-armour-ceo-stephanie-linnartz-earnings-growth-highest-priority\/649791\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Protect this House 3<\/span><\/a><span style=\"font-weight: 400;\">\u201d under the leadership of former CEO Stephanie Linnartz. It was three-pronged. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">First, management plans to strengthen the brand globally, particularly in the U.S., and secondly, they aim to improve product offerings. A third string to the bow is to renew the focus on U.S. sales.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In the halls of power some changes have taken place with Stephanie Linnartz resigning as CEO. She was<\/span><a href=\"https:\/\/www.cnbc.com\/2024\/03\/14\/wall-street-not-happy-that-kevin-plank-returning-as-under-armours-ceo.html\" target=\"_blank\" rel=\"noopener\">&nbsp;<span style=\"font-weight: 400;\">replaced by founder Kevin Plank on April 1<\/span><\/a><span style=\"font-weight: 400;\">. Investors perceived that change negatively because it signaled that the progress of the strategy might not be satisfactory. After the news came out, UA\u2019s shares fell.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">On the other hand, analysts expect Plank to concentrate on improving corporate top-line growth and returning North American revenues to higher levels seen previously. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Leadership changes between phases of vital business turnarounds can bring some uncertainty, but Plank has the credentials to get Under Armour back on track.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Management expects full-year revenue to sit between 3% and 4% lower than last year\u2019s figure. Notably, management raised the gross margin forecast by 120-130 bps, while adjusted EPS is forecasted to be between $0.50 and $0.52.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Shares of the apparel retailer have declined by more than 20% over the past month amid demand downturns and the CEO switch. This has led to the stock trading at a cheap valuation compared to its industry peers.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In terms of non-GAAP forward price-to-earnings, the stock is trading at 13.37x, 14.5% lower than the industry average, and a 44.3% discount to NKE. Analysts expect the company\u2019s EPS to increase 12.2% in fiscal 2024 and 50.9% in fiscal 2025, so the stock looks undervalued at the current price level.&nbsp;&nbsp;<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Also, it is trading at 0.52 times forward sales, which looks attractive compared to its industry peers.<\/span><\/p>\n<h2><b>NIKE vs Under Armour Stock?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Under Armour appears to be the better bet with analysts forecasting an average price target of $15.50 per share, suggesting the the stock could soar by as much as 137%. Nike projections are more muted with the consensus implying a gain of 27% to fair value.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So while softening demand amid weak discretionary spending has affected both stocks&#8217; performances, turnarounds for each bode well for the future with Under Armour appearing to have the upside advantage on a valuation basis.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The sportswear industry struggled last year with high inflation affecting consumers\u2019 discretionary spending on sportswear. As a result, shares of NIKE, Inc. (NYSE:NKE) and Under Armour, Inc. (NYSE:UA) experienced sustained declines, down 18% and 22% year-to-date, respectively. But the worldwide sportswear market is expected to return to a growth trajectory soon and expand at a [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":532553,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"content-type":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[22],"tags":[406,355,772,1473,318,1326],"class_list":["post-532551","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-cprx","tag-nwsa","tag-nke","tag-peg","tag-tgt","tag-ua"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/financhill.com\/blog\/wp-content\/uploads\/2024\/04\/Untitled-design-2024-04-08T070832.408.jpg","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p9czeV-2exx","_links":{"self":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts\/532551","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/comments?post=532551"}],"version-history":[{"count":9,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts\/532551\/revisions"}],"predecessor-version":[{"id":532561,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts\/532551\/revisions\/532561"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/media\/532553"}],"wp:attachment":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/media?parent=532551"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/categories?post=532551"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/tags?post=532551"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}