Adidas vs. Nike vs. Under Armour: An Overview
Adidas AG, Nike Inc. (NKE), and Under Armour Inc. (UA) are the three largest retailers in the competitive athletic apparel industry. They're ubiquitously worn in a variety of sports leagues, including the NBA. Each company has carved out an impressive market share in a growing and increasingly innovative industry. Which company will stand out, and what are the key differences—and similarities—between three well-known brands?
- Adidas, Nike, and Under Armour are competitors in the lucrative market for athletic wear.
- Nike is the giant of the industry.
- Adidas appears to have room for growth.
- Under Armour is a pure growth play.
Adidas (ADDYY) is headquartered in Herzogenaurach, Germany, and trades as an American depositary receipt (ADR) in the United States. That makes it easier for U.S. investors to buy the stock of this foreign company.
The company boasted a market capitalization approaching $63 billion as of early November 2020. The ADR was priced at $163 per share with a price-to-earnings (P/E) ratio of over 36 and a trailing annual dividend yield of 1.93%.
Adidas has a more established market in European countries. They have a lifetime sponsorship with Lionel Messi, one of the highest-paid soccer players.
The Adidas Group owns two other widely recognized names in athletics: Reebok and TaylorMade. In late 2020, it was reported that Adidas was considering selling the Reebok brand.
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 plans to create growth through investments intended to increase the speed of new products to the market and allow the company to adapt more quickly to market demand. The company also intends to invest strategically in marketing to growing urban populations across the globe.
Nike is the largest of the three companies and perhaps the one with the best brand recognition. Headquartered in Beaverton, Oregon, Nike has a market capitalization of around $203 billion as of early November 2020. Nike's share price was above $129, and its P/E ratio was 76.79. Dividends were yielding 0.79%.
The Dominant Player
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 negative perceptions about its labor practices in emerging markets.
Nike markets most of its products under the Nike name, but it also owns smaller niche brands such as Jordan and Converse. The company intends to significantly increase 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.
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 the smallest of the three companies.
Under Armour has a market capitalization of around $6.36 billion as of early November 2020. The stock was trading at around $14 per share. As a younger growth-phase company, the stock does not currently pay a dividend.
At this writing, Under Armour is winding up a tough 2020. It expects only modest growth in earnings per share in 2021 after a full-year revenue decline for 2020 that was expected to be in the high teens.
Under Armour's revenue and net income growth since its initial public offering (IPO) had 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.
Going for Youthful Buyers
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.
Compared to Nike, 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. The company's growth projections continue to be aggressive.
Competitors like Under Armour will continue to innovate to attempt to steal market share away from Nike, 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.
At Nike's Heels
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 compared 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 promotional 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 most innovative apparel products.
Its performance has been lousy in 2020, but by the end of the year, it reported slightly less lousy numbers, thanks to high sales of its home workout gear.
Under Armour has also acquired several fitness app companies as it seeks to integrate mobile technologies to bolster its brand.
Which to Buy and Hold in 2019
Despite the company's stability, size, and growth, investors might want to steer clear of investing in Nike for now. Nike is a mature company, and its stock has been on a roll, nearly doubling its price since the beginning of 2018. 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 appears attractive if it starts delivering growth in 2021, 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 2021.
Under Armour is a pure growth play for 2019 and beyond. As such, it is not without risks. The company appears to be investing in key areas that will bolster the brand in years to come.