Making money in sports isn't limited to millionaire athletes and billionaire team owners. Regular investors like you and me can cash in too. In fact, sports-related spending is incredibly sticky: Last month TD Ameritrade sponsored a survey that found parents of children in competitive youth sports spend $100-$400 more per month and are even delaying retirement to pay for their child's athletic costs.
Regardless if you're a soccer mom, a hard-core athlete, an athleisure fan, or simply an investor looking to capitalize on sports-related spending, here are five companies to put on your watch list:
Nike continues to take advantage of big events and endorsements
Using a Star Wars analogy, Under Armour's (NYSE:UAA) (NYSE:UA) amazing 2015 was akin to the first (real-world chronological) Star Wars film with the company starring in the role of the Rebel Alliance. Under Armour's footwear arrived in a major way mostly due to endorser Steph Curry's amazing season that culminated in a NBA title, Finals MVP, and Regular Season MVP. At one point Under Armour reported 64% year-over-year footwear growth.
For Nike (NYSE:NKE), however, 2016 represented a The Empire Strikes Back moment, at least as it relates to marketing and optics. On the court, megaendorser LeBron James battled back from a two-game deficit to beat Curry's Golden State Warriors in the 2016 NBA Finals. Additionally, Nike appeared to score a major coup when Under Armour's Michael Phelps was photographed wearing Nike sweatpants on the cover of Sports Illustrated. Analytics firm Apex Marketing pegs this snafu resulted in $453,000 of free brand exposure for Nike at the expense of Under Armour.
In other Olympic events, Nike's track-and-field business showed its dominance with its ubiquitous yellow-and-pink Zoom Victory Elite 2 shoe (on the left) on display in most sprinting events and on multiple Olympians. USA Men's basketball turned in Gold-medal performance: Nike has endorsements deals with nine of the 12 athletes. Nike ended fiscal year 2016 by increasing revenue 6% and EPS of 17% on a year-over-year basis and has seen its stock increase nearly 10% over the last one-year period.
2016 has been a rare down year for Under Armour
In sports, it's easy to see competition as win or lose. In business, however, this is a false narrative. Under Armour is the best example of this key difference between sports and business. While it's true Under Armour failed to follow up its near-flawless 2015, certainly on optics (as discussed above), 2016 has seen the company continue to execute operationally. Through the first half of 2016, Under Armour increased its revenue 29% over 2015's totals.
Under Armour's biggest opportunity going forward may be the international market. While its North American business increased 24% over 2015's totals, the company's International segment increased 62% during this time frame. As a point of comparison, approximately 52% of Nike Brand revenue is outside of North America while that figure is only 15% at Under Armour.
Under Armour may have missed an opportunity during the Olympics, but is taking Steph Curry on a five-day trip to the Middle Kingdom in early September. Earlier this year Under Armour's CEO Kevin Plank attributed a 157% increase in online sales to China; look for Under Armour to continue to grow its top line with strong participation from its International segment. Under Armour's A shares have lagged over the last year on valuation concerns, but should power higher if the company continues to perform.
Fitbit is a play on connected fitness
Interestingly enough, International hasn't been Under Armour's fastest-growing segment. That designation goes to its Connected Fitness segment, which reported year-over-year growth of 91% throughout the first six months of 2016. The pure-play leader in wearable tech is Fitbit (NYSE:FIT). The company has certainly struggled over the last year with shares down more than 60%. During the last six months, the company has nearly tripled research and development expenses, which should pay off in better products going forward.
As a result of the 60% sell-off, shares now trade at 12 times forward earnings, which is relatively inexpensive for a high-growth company. IDC expects connected wearables to grow 20% per year through 2020 and Fitbit should be able to benefit from this trend. Analysts tend to agree, the one-year price target based on analysts polled by Yahoo! Finance is $21.38 -- approximately 50% higher than its current price.
America's newest sport: leisure
In the apparel industry, athleisure remains a rare bright spot. The company that essentially created the industry, lululemon (NASDAQ:LULU), appears to be righting the ship. The company reported year-over-year top line growth of 17% last quarter with comparable store sales increase of 8% on a constant-currency basis.
The company has struggled recently as statements from founder Chip Wilson, a recall on see-through yoga pants, and an odd board of directors conspiracy have overshadowed the company's operational performance. The recently reported quarter appears to represent a distraction-free company and portends better performance in the future.
Another way to invest in athletic-focused gear is apparel conglomerate VF Corporation (NYSE:VFC), which boasts outdoor-athletic focused brands The North Face, Timberland, Vans, Reef, and athleisure-focused Lucy. On the surface, VF's Outdoor and Action Sports division has struggled in 2016 with revenue up only 2% with segment profit down 11.3%. That said, I'm encouraged by the 12% direct-to-consumer (read: company-owned stores and e-commerce) revenues. Weakness appears to be in the company's wholesale business. VF's profit margins were negatively affected by currency impacts, which should ameliorate going forward.
Jamal Carnette has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Fitbit, Lululemon Athletica, Nike, TD Ameritrade, and Under Armour (A Shares). The Motley Fool owns shares of Under Armour (C Shares). 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.