Nike, Skechers, and Under Armour Could Be Good Investments

The athletic footwear and apparel market is growing on the back of more health-conscious consumers, which has led to more opportunities for companies that sell related gear. One such company is Nike (NYSE: NKE  ) , a leading player in the athletic footwear and apparel market space. Nike recently released strong fiscal 2014 results, and there are good reasons why its robust performance can continue in the future.

However, investors should also take a closer look at Skechers (NYSE: SKX  ) and Under Armour (NYSE: UA  ) , as both of them have been growing at a fast pace. The athletic footwear market is expected to grow at a compound annual growth rate, or CAGR, of 1.75% through 2016 on the back of strong global demand for comfortable footwear and lightweight athletic shoes. The Asia-Pacific region is expected to be a leading growth driver with a share of 46.1% of the market by 2018, closely followed by Europe.

A look at Nike
Nike is by far the world's largest athletic shoe manufacturer, with an expected market share of close to 50%. More impressively, despite its size it still continues to grow. Nike posted revenue growth of 8% in the previous quarter versus the year-ago period, clocking revenue of $7 billion. Nike's growth was driven by strong demand for its products in both developed and emerging markets.

Nike, however, has had a continually frustrating experience in China, the world's fastest growing market. The company has not been able to make much progress there, and the story continued in the first quarter as revenue declined 3% year-over-year. In addition, sales of footwear items were down 7%. Nike has strong competition in China from brands like Li Ning and Peak, and it seems that it still hasn't gotten the right product (at least as far as the Chinese market is concerned).

It is expected that the Chinese athletic apparel and footwear market will be worth $32 billion by 2017, and Nike will certainly want to capitalize on it. Indeed, the market in China is huge and can be a good growth driver for any company that can strike a chord with consumers. Nike is taking corrective steps to reset this trend going forward. The company is primarily focusing on delivering products that Chinese consumers want.

Skechers enjoying great growth
On the other hand, Nike's peer, Skechers, has been performing well in both international and emerging markets. Skechers is doing well in China, where Nike is having a tough time. Skechers has been recovering well from its 2011 "toning shoes" fiasco, and shares have been outperforming Nike.

On back of strong performances in domestic as well international markets, along with strong growth of its e-commerce channel (30.3%), Skechers reported consolidated revenue of $515.8 million in the recent quarter. It registered a comparable store sales increase of 16.9% due to strong demand for its new products. The increase in revenue was also driven by its new stores.

Skechers saw triple-digit improvements in sales in China and double-digit improvements in Hong Kong, Malaysia, and Singapore. The company is now focusing on India as its next growth frontier, with sales from the country expected to have a positive impact on the overall financial performance in the next two to three years.

Under Armour looking to disrupt
On the other hand, Under Armour has also been growing at a good pace. Historically, the only year in which Under Armour's growth was below 20% was during the recession of 2009, when it registered a commendable 18% growth. If it continues growing at its current pace, the company would be able to record revenue of $10 billion by 2020.

To attain that level of revenue, it has to snatch market share from other players. For that reason, the company is aggressively marketing its products, and its marketing budget (as a percentage of revenue) equaled Nike's last year. Also, Under Armour's revenue grew an impressive 25% in 2012 to $1.83 billion. However, an important thing to note is that only 6% of it was contributed by markets outside of North America, according to The Wall Street Journal. In comparison, Nike gets almost three-fifths of its revenue from outside the U.S., which means that Under Armour has a huge opportunity to expand its business abroad.

However, Under Armour is expensive and is still trying to cut its teeth on a big scale. Nike is a tried and trusted player in the market and has solid brand presence. It trades at 26 times earnings and carries a dividend that yields 1.10%. In comparison, Under Armour is quite expensive at a P/E ratio of 57 times, and doesn't pay a dividend.

Bottom line
Nike has delivered consistent results and has a promising future. The company has posted continuous growth in its top line and bottom line, and is working on different strategies to grow its business further. Its aggressive expansion plans in emerging markets should fetch good returns for investors in the long run.

On the other hand, both Under Armour and Skechers are looking at international markets to grow their businesses. They might be expensive compared to Nike (with Skechers having a P/E of 35), but both are smaller players and have posted superior growth numbers. Hence, investors looking for more aggressive plays in this space should take a look at them.

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9/28/2016 4:00 PM
NKE $53.25 Down -2.09 -3.78%
Nike CAPS Rating: *****
SKX $22.48 Up +0.32 +1.44%
Skechers CAPS Rating: ****
UA $39.38 Up +0.19 +0.48%
Under Armour (A Sh… CAPS Rating: ****