This Device Should Bring More Growth for Under Armour

Vladimir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As more people turn to running as their pastime, companies try to exploit the trend. In our tech world, apparel and shoes are not enough for runners. They need wearable devices to know everything about their workout. That’s where companies like Under Armour (NYSE: UA) and Nike (NYSE: NKE) are trying to squeeze more money from customers’ pockets.

What’s on the market?

Under Armour has recently issued its performance-monitoring system for athletes called Armour39. It tracks your heart rate, real-time intensity and even willpower. Willpower is calculated via a formula based upon the input the device gets from your body, and it is a marketing move rather than scientific breakout. The system consists of a module and chest wrap, which come in at $150. Your performance would be tracked with the help of a mobile app, which is currently compatible with iPhone 4S, iPhone 5, the fifth generation of iPod touch and iPad 4. The company plans to issue a display watch for those who do not want to run with their mobile phones.

Nike offers a wristband and a sport watch. The wristband is able to monitor time, calories burned, and your heart rate, if you buy Polar's Wearlink, a module to measure the heart rate. It is interesting to note that while Under Armour uses its own heart-rate module, Nike relies on the module provided by the market leader. The wristband costs a moderate $59, while the watch would cost you $150.

Polar produces sophisticated and pricey devices that target serious athletes. Its main competitor in this field is Garmin (NASDAQ: GRMN). A top-level running watch with a heart-rate monitor from Garmin could easily cost $450. Polar devices reach the same price levels. Nike and Under Armour compete in a different league, targeting mass audience.

Who is the target?

It’s easy to notice that Under Armour steps in with a product that contains nothing new. The features of heart-rate monitoring and calorie burning were implemented in Polar and Garmin devices years ago. You don’t take the measurement of willpower seriously, do you? What it shows us is that the company believes there is an under-served market, and it could easily be reached.

It seems unwise from Garmin, whose stock is down 13% this year, to ignore this opportunity. The number of people who need a lifestyle gadget is overwhelmingly bigger than the number of people who need to seriously track their workouts. Garmin has a running watch that falls into the cheap category, costing $130. The problem is, it looks utilitarian, while the competitors’ gadgets look fancy. The design of the gadget and the marketing fluff around it a more important for this market segment than the true features of the product.

What should you buy?

There are two things you cannot ignore. People become increasingly aware of sports, and people love gadgets. Put two and two together, and you can see why sports gadgets would be an important part of companies' product mix. Nike is going further and is encouraging software developers to view its wristband device as a platform for creating apps. The company wants the device to become something you would not want to take off. Nike is doing well this year. The company is trading at 19.5 forward P/E and is paying a dividend that yields 1.40%. 

Under Armour is moving in the same direction. Devices bring more engagement with the brand, so the impact goes beyond sales. This is important, because apparel companies must provide lifestyle solutions, or they get lost. This move could bring more steam into the Under Armour, which has solid cash position and little debt, but lacks rapid growth. 

Garmin, which is trading at an attractive 14.5 forward P/E and is paying a dividend that yields 5.21%, is interesting from an income point of view. The company lacks growth, and it is not capitalizing on its technological leadership in the area of sports devices.

Bottom line

Good move from Under Armour. The company, which trades at 31 forward P/E, needs more growth momentum to justify its price. Running is an area that is growing fast, so building products around this trend is a smart long-term move. Nike also does well on this front. The company states that running is one of its priorities and lives up to its words. Garmin needs to do something if it wants a slice of the pie. The company already has all the necessary technology to overcome the competitors. However, it does not seem to make a move that would encounter the competition. If it continues to ignore, it could see the market share of its cheapest devices sink. These devices target the biggest part of the running market, so it is a prize worth fighting for.

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool recommends Nike and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus