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2014 Will Be a Great Year for Athletic Retailers

Under Armour (NYSE: UA  ) got a big boost, up as much as 20%, earlier last week after posting solid fiscal fourth-quarter results. The athletic maker posted earnings per share of $0.59, beating consensus estimates by more than 10%, while total revenue increased 35% year over year. Even with the rapid surge in the stock price, the stock is well-positioned to succeed over the long term.

What drove Under Armour even higher?
Under Armour has introduced a number of new products that should help drive its growth going forward. Its recent big win includes signing a 10-year deal with Notre Dame. Before that, Notre Dame had a deal with Adidas  (NASDAQOTH: ADDYY  )  for 17 years. Beyond that, driving Under Armour's future growth should be the company's expanded product line and focus on selling direct to customers.

Under Armour is competing well with Nike (NYSE: NKE  )  on the athletic-apparel side, where Sportscan data showed that Under Armour's athletic-apparel sales jumped 47% from Nov. 9 to Jan. 4 compared to Nike's 28% increase for the same period. In addition, during the fourth quarter Under Armour's apparel sales were up 27% year over year, and footwear was up 25%.

Under Armour does command premium pricing when it comes to valuation, trading at more than 75 times earnings, given its market share. Under Armour is the leader here, owning about 60% of the synthetic-performance-apparel market. This market is worth roughly $3 billion.

However, Under Armour has a big opportunity to tap into the even larger active-use sports-apparel market, estimated to be worth $12 billion, with a longer-term opportunity to tap the $58 billion activewear market. The activewear market means Under Armour would expand beyond performance apparel into casual and informal wear.

Under Armour should go head to head with peers in 2014
Under Armour can also tap the international market, including Asia and Latin America, as more than 90% of its sales are currently generated from inside the U.S. In doing so, Under Armour will become an even greater nuisance for the likes of Nike and Adidas. Nike and Adidas are the world's two largest sports-goods companies by sales, ranking one and two, respectively.

One of Nike's recent wins also includes expanding beyond the U.S. However, Nike already has an impressive global presence and is established in China. Nike's recent sales in China have been weak due to a slowing down of the country's economy. On the other hand, Nike hopes to drive sales in the country with new marketing efforts.

Meanwhile, Adidas is also looking to gain market share in China. The German-based retailer has been expanding its product offering in China beyond shoes. This includes offering basketball and other sports and casual apparel in its retail outlets. However, one of the biggest headwinds for Adidas is a declining euro. Adidas gets more than three-quarters of its revenue from outside of Europe.

As far as investing in Nike, the company pays a 1.2% dividend yield and trades at 21 times earnings. Nike also trades at 14.5 times enterprise value-to-earnings before interest, taxes, depreciation, and amortization. Meanwhile, Adidas trades at 13 times EV-to-EBITDA. That puts Adidas the cheapest on an EV-to-EBITDA basis of the three, since Under Armour trades at nearly 30 times EV-to-EBITDA.

Bottom line
Given the lifestyle aspect of sporting goods and its low cost, the industry has proved to be more recession-resistant than others. What's more is that Under Armour's premium should also hold up well in a rebounding economy, as consumers have more money to spend and will ultimately trade up to Under Armour's products. However, after the recent run up in the stock, Under Armour now trades at 75 times earnings; investors should wait for a pullback before adding Under Armour to their portfolio.

Is Under Armour the Fool's top stock?
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