As the Golden State Warriors take a convincing 2-0 lead in the 2016 NBA Finals, hopefuls on each side are anxiously looking forward to tonight's game.
Meanwhile, investors have favorites of their own, namely their ownership shares of two sports apparel companies endorsed by the two biggest players on the court – one from each team.
The Endorsement Deals
Under Armour (:UAN/A)’s chief endorsee, Golden State Warrior, Stephen Curry, who prefers to be called the Baby-Faced Assassin, left Nike for UA for what was widely reported to be about $4 million per year.
When it comes to sales, LeBron’s shoes outpaced Curry’s in Q1 2016. Curry, however, took the lead in April and continued through May.
In terms of who helped their corporate sponsor more, Curry would appear to have that title. According to Under Armour CEO Kevin Plank, Curry’s outstanding season brought “unprecedented attention to our overall footwear business.” The result – 64% sales growth in Q1 2016.
When it comes to overall corporate growth, Under Armour is the clear winner there as well. Last year, Under Armour had revenue gain of 29%. Wall Street has the company pegged for an additional 25% revenue gain in 2016.
Nike’s expected revenue growth for 2016 is 8.2%. No wonder investors and analysts alike believe Under Armour stands to be the next $10 billion brand, according to BB&T analyst, Corinna Freedman.
Nike wins the valuation caption with stock trading at 25 times earnings versus Under Armour’s almost 70 times earnings trade rate over the past year. Clearly Under Armour’s growth is responsible for the high P/E.
As Freedman notes, “Under Armour’s growth is priced in.” The P/E ratio of 70 would be reduced if Under Armour achieved its ambitious 2017 projected earnings, but only down to a P/E ratio of about 45.
Regarding stability and durability, Nike is the clear winner again. Under Armour expects to hit $5 billion in revenue this year and that’s a lot. Still, it doesn’t compare to Nike at $33.9 billion.
Nike is simply a much larger company, one that generated $2.1 billion in free cash flow over the past 12 months. Those numbers overwhelm UA, which burned up $370.8 million over the same period.
The Final Buzzer
The street likes both companies overall. Analysts rate Nike “outperform and Under Armour ”perform.” Both are rated either “buy” or “strong buy” by Zacks and TipRanks.
Zacks suggests holding on to Nike stock, courtesy of its favorable rank and wait before accumulating a position in Under Armour. InvestorPlace, on the other hand, prefers Under Armour, based on management and a belief that Under Armour’s CEO, Kevin Plank, is the more visionary leader.