Under Armour Or Lululemon – Battle Of The High Flyers
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.
When it comes to high end athletic clothing there are two companies that are the high flyers in this niche, Under Armour (NYSE: UA) and Lululemon Athletica (NASDAQ: LULU). While I realize that Nike and Columbia and other brands make high end athletic apparel, none have that as the core of their product line. Since both UA and LULU are high flying stocks that command premium valuations I wanted to compare the two and see if one is a better “fit” than the other.
Under Armour
Current Price: $82.32
P/E based on '12 earnings: 35.48
Growth expected: 20.42%
PEG: 1.74
The company that said “We must protect this house”, is trying to build its house in multiple product lines. UA has been expanding into different types of shoes, accessories, and recently charged cotton products. UA has been consistently making analysts look foolish by beating estimates on average by 20% in the last year. The company has signed multiple major college programs to outfit exclusively, which helps increase brand awareness. The company also pursues major pro athletes to endorse its product line. With all of this spending one might expect that UA has trouble on its balance sheet, but that is not the case. UA currently has a 0.12 debt-to-equity ratio. If there is one part of UA's business that is undervalued, it is their decision to bring the accessories business back in house. Since this decision the accessories division has been growing by leaps and bounds. Since UA products like shirts, polos, and shoes are higher priced, their accessories can be a way to introduce UA to new customers.
Lululemon Athletica
Current Price: $65.63
P/E based on '12 earnings: 41.28
Growth expected: 29.02%
PEG: 1.42
Lululemon is primarily known for its yoga wear. The company has become nearly synonymous with yoga training. Lululemon caters primarily to its female clientele. I can say this without fear of being called sexist because on their site they have 14 different categories of women's clothing and accessories versus 8 categories for men. In addition the company's “Opportunity” in their most recent investors presentation says they want, “To become the number one women's athletic apparel brand.” LULU has been on a tear when it comes to beating analyst estimates as well. The company has beaten estimates by over 10% on average this last year. In addition LULU has an even better balance sheet than UA with no long term debt and about $277 million in cash.
If I had to choose between the two investments I would have a hard time. UA appears to have the more broad spectrum of offerings and thus it has a natural advantage of being able to sell items that LULU does not compete on. However, LULU has the slightly more attractive stock price, and dominates its industry. I like both companies, but based on price and growth I would have to pick LULU as my top high flyer. Use this as a starting point for your own research. Can one or both of these companies get your portfolio moving? Or do their current valuations just make you sweat?
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