Adidas AG, Nike Inc. (NYSE: NKE) and Under Armour Inc. (NYSE: UA) are three of the largest retailers in the competitive athletic apparel industry. Each company has carved out an impressive market share in a continuously growing and innovating industry.
Overview of Adidas
Adidas is headquartered in Herzogenaurach, Germany, and trades as an American depositary receipt (ADR) in the United States. The company boasts a market capitalization approaching $19 billion and trailing 12-month revenues of more than $16 billion. The stock ended 2015 priced around $48 per share and with a price-to-earnings (P/E) ratio just over 8. The stock ended 2015 near its 52-week high, which was approximately $50 per share. It also yields a dividend of around 1.8%.
Adidas has a more established market in European countries. The Adidas Group also owns two other widely recognized names in athletics: Reebok and TaylorMade. While Adidas was initially known as a soccer brand, its ownership of these other brand names establishes it as a diversified player in athletic apparel and goods.
Adidas expects to increase its top-line revenue by 15% annually through 2020. It plans to create this growth through investments intended to increase its speed of new products to market, which will allow the company to adapt more quickly. It also intends to invest strategically in marketing in growing urban cities across the globe, as the company recognizes the movement of population, particularly younger and more athletic segments of the population, to urban areas.
Overview of Nike
Nike is the largest company of the three and perhaps the one with the most brand recognition. Headquartered in Beaverton, Oregon, Nike has a market capitalization around $102 billion and trailing 12-month sales of more than $31 billion. Nike ended 2015 priced near $62 per share, which is at the upper end of its 52-week range of $45 to $68. Its P/E ratio is near 24, and it yields dividends of only about 1%.
Nike is dominant across the globe; in particular, it maintains the largest market share in the athletic apparel industry in North America. The company has made significant efforts in recent years to repair public perception issues surrounding its labor practices in emerging markets. Its turnaround in the part of its business operations has been widely praised. Nike markets most of its products using the Nike name, but it also owns smaller niche brands, such as Jordan and Converse.
Nike's goal is to increase its annual revenues to $50 billion by 2020. It intends to accomplish this by significantly increasing its direct sales and e-commerce revenues in developed markets. The company also sees significant growth opportunities in China and in its women-focused product lines.
Overview of Under Armour
Under Armour is by far the youngest of the three stocks, having gone public in 2005. While the company's growth during the past 10 years has been remarkable, it is still also the smallest of the three companies by any measure. Under Armour has a market capitalization around $15.5 billion and trailing 12-month revenues of $3.6 billion. The stock ended 2015 trading around $80 per share with a P/E ratio of approximately 40. As a younger growth-phase company, the stock does not currently pay a dividend.
Under Armour's revenue and net income growth since its initial public offering (IPO) has been exponential, rewarding early investors with significant share price growth. Starting out with a niche in the American football market, famously selling moisture-wicking base layers, the company has consistently found ways to innovate products that penetrate mature markets. It tends to appeal to younger market segments, and it often prices its products at a premium for its perceived quality of innovative materials and designs.
Under Armour projects to continue to compound its annual growth at a rate of 25% per year through 2018. Compared to Nike's size, Under Armour appears to have substantial room to grow. Under Armour projects substantial growth in footwear sales and additional income streams from more sales directly to consumers. The company will also continue to enter new markets, most recently hiring a talented team to initiate a plan to enter the outdoor performance apparel market. The expectations are set high, but recent history would say not to bet against Under Armour's success.
Nike is the giant in the industry and perhaps has the most to lose. Its shares reached all-time highs in 2015, and its growth projections continue to be aggressive. Competitors like Under Armour will continue to innovate to attempt to steal market share away, and the younger generation of buyers may show signs of favoring smaller brands and more transparently sourced goods that they can obtain easily through online shopping.
Adidas is entrenched in market segments domestically and abroad where it has significant brand loyalty relative to its competition. However, the company does not boast quite the same level of high-end sponsored athletes, which could harm its perceived value relative to the other two companies.
Under Armour will no doubt be on the attack in years to come. It has paid top dollar for a lineup of world-class athletes across all major sports, which should continue to feed its perception of having some of the highest-performance, most-current and innovative apparel products. Under Armour has also acquired several fitness app companies, as it seeks to integrate mobile technologies to bolster its brand.
Who to Buy and Hold in 2016
Despite the company's stability, size and growth, investors should steer clear of investing in Nike for 2016. Nike is a mature company, and its stock is hitting all-time highs. Those stock prices would seem to reflect its aggressive growth goals. If any of those goals waver, a stock price correction is sure to follow.
While Adidas is also a mature apparel company, the pricing for 2016 appears attractive. Its P/E ratio is much more reasonable, and it pays a better dividend than Nike. Adidas is unlikely to experience exponential share price growth, but at its current price, it appears to be a sound investment for 2016.
Under Armour is a pure growth play for 2016 and beyond. Naturally, much of this expected growth is evidenced by its share price and P/E ratio. However, the company appears to be investing in key areas that will bolster the brand in years to come. Although it would have been great to be a buyer several years ago, this stock still has significant room to run up in share price.