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3 Sportswear Stocks to Try On

The global activewear market is projected to grow from US$362 billion in 2020 to US$544 billion in 2026, expanding at a 7% annual clip

Vikram Barhat 11 August, 2021 | 1:09AM
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Race

The Olympics are the biggest and brightest display of the world’s most gifted athletes and sportspeople. The once-in-four-year sporting jamboree also serves as a giant display for sporting brands. From players’ uniforms to footwear and sporting equipment, brand logos could be seen everywhere in and around sporting arenas, and on TV screens, at the recently concluded sporting carnival in Tokyo.

The ripple effect of such large-scale sporting could provide further impetus to the fitness megatrend emerging from the COVID-19 pandemic.Companies offering athletic apparel and footwear brands are direct beneficiaries of this momentum as more people take up sports and other fitness activities as part of their lifestyle. Resultantly, the global activewear market is projected to grow from US$362 billion in 2020 to US$544 billion in 2026, expanding at a 7% annual clip.

The following playersare the leading participants of the global sportswear industry. Investors looking for activewear play may want to take note of these names that boast solid fundamentals, near-global presence, strong brand equity, and product catalogues that cater to a wide spectrum of tastes and trends.

Nike Inc Class B

 

Ticker

NKE

 

Current yield:

.63

 

Forward P/E:

40.98

 

Price

US$173.21

 

Fair value:

US$128

 

Value

36% premium

 

Moat

Wide

 

Moat Trend

Stable

 

Star rating

**

Data as of Aug 06, 2021

The largest athletic footwear and apparel brand in the world, Nike (NKE) designs, develops, and markets athletic apparel, footwear, equipment, and accessories. The company generated more than US$44 billion in revenue in fiscal 2021. Nike sells products worldwide with footwear accounting for about two thirds of total sales.

“We view Nike as the leader of the athletic apparel market and believe it will overcome the challenge of COVID-19,” says a Morningstar equity report, assigning Nike a wide moat based on its intangible brand asset.

The report forecasts the sports brand will “maintain premium pricing and generate economic profits for at least 20 years.”

Although the company faces significant competition, “we believe it has proved over a long period that it can maintain share and pricing,” says Morningstar equity analyst David Swartz, who recently raised the stock’s fair value from US$118 to US$128, prompted by a rebound in sales from the depth of COVID-19 disruption.

Nike has a particularly attractive growth opportunity for growth in China and other emerging markets. “Nike experienced double-digit annual growth in fiscal 2015-19 in greater China and should do so again in fiscal 2021 and beyond,” asserts Swartz, adding that the firm’s e-commerce push should benefit as incomes rise in China, Latin America, and other developing regions.

adidas AG ADR

 

Ticker

ADDYY

 

Current yield:

1%

 

Forward P/E:

41.32

 

Price

US$183.21

 

Fair value:

US$122

 

Value

55% premium

 

Moat

Narrow

 

Moat Trend

Stable

 

Star rating

*

Data as of Aug 06, 2021

German sportswear giant Adidas (ADDYY) makes and sells athletic and leisure apparel, footwear, accessories, and sports equipment. The company’s fashion brands include Yeezy, Ivy Park, and Y-3. Adidas sells its products in more than 160 countries through retail stores and e-commerce sites.

Adidas’ sales roared back from the pandemic-led weakness in 2020 as the company reported better than estimated sales and earnings in the second quarter of 2021. While it saw strong sales growth in North America and Europe, the Middle East, and Africa, Adidas shares slid 6% on concerns about the political situation in China and virus-related factory shutdowns in Vietnam. “We view these problems as temporary and believe Adidas’ overall momentum is solid,” assures a Morningstar equity report. 

Despite a 16% sales decline in 2020, the company’s e-commerce, which is available in more than 50 countries, grew 53% in 2020 and generated more than EUR 4 billion in sales. “Adidas expects its e-commerce to rise to EUR 8 billion-EUR 9 billion in 2025, which is achievable,” asserts Swartz, who recently upped Adidas’ ADRs from US$116 to US$122, after the company “outperformed our expectations” in the first quarter of 2021.

Under Armour Inc A

 

Ticker

UAA

 

Current yield:

-

 

Forward P/E:

82.64

 

Price

US$24.81

 

Fair value:

US$13.90

 

Value

78% premium

 

Moat

None

 

Moat Trend

Stable

 

Star rating

*

Data as of Aug 06, 2021

Baltimore-based Under Armour (UAA) sells athletic apparel, footwear, and accessories in North America and other geographies. The firm’s consumers include professional and amateur athletes, college and professional teams, and people with active lifestyles.

The pandemic hit the company hard over the past year, but it made a strong come back in the second quarter of 2021 on the back of the ongoing strength of the sportswear category. “Under Armour bettered our 70% estimate with 85% currency-neutral sales growth in the quarter,” says a Morningstar equity report.

North American sales (67% of the total) grew 101% and 11% versus 2020 and 2019, respectively. The firm reported robust growth (52%) in its direct-to-consumer operations despite an 18% decline in e-commerce.

Nevertheless, Under Armour has had its share of problems in both its direct-to-consumer and wholesale businesses. “Although sales through its direct-to-consumer channels increased to US$1.8 billion in 2020 from US$1.5 billion in 2016, Nike and others have experienced much greater direct-to-consumer growth in this period,” Swartz points out.

Yet, he forecasts UA’s direct-to-consumer revenue to rise to 51% of total revenue by 2030 from 41% in 2020. “This should allow Under Armour to have better control over its brand,” says Swartz, who recently revised the stock’s fair value from US$13 to US$13.90.

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
adidas AG ADR65.18 USD1.04Rating
Nike Inc Class B110.51 USD0.75Rating
Under Armour Inc A10.07 USD0.65Rating

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry. He also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.

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