Over the past five years, Lululemon's (LULU -3.94%) stock has soared more than 400% as the activewear retailer has continued to expand and lock in more shoppers. Meanwhile, Under Armour's (UA -1.57%) (UAA -1.21%) stock has dropped about 40% as it's struggled to keep pace with Nike (NKE) and Adidas (ADDYY -3.74%) in the footwear and apparel markets.

But this year, Lululemon's stock declined nearly 10% as Under Armour's stock advanced about 40%. Let's see why the market suddenly seems to favor UA over Lululemon, and whether or not the trend will continue.

A woman does yoga in front of her laptop at home.

Image source: Getty Images.

Lululemon easily weathered the pandemic

Lululemon temporarily closed most of its stores in the first half of 2020 as the pandemic spread, but its revenue still rose 11% to $4.4 billion for the full year. That marked a slowdown from its 21% revenue growth in 2019, but it still fared much better than many other apparel retailers.

Lululemon's direct-to-consumer revenue, which accounted for 52% of its top line, soared 101% during the year as its online sales easily offset its loss of brick-and-mortar revenue. Its earnings fell 9% for the full year due to higher fulfillment costs for online orders and pandemic-related expenses, but its gross margin still expanded, and it opened new stores throughout the year.

Lululemon also repeatedly reiterated its "Power of Three" strategy for generating double-digit annual sales growth through 2023. It intends to achieve that goal by doubling its men's revenue, doubling its digital revenue, and quadrupling its international revenue. Analysts expect its revenue and earnings to grow 29% and 37%, respectively, this year.

Under Armour struggled throughout the pandemic

Under Armour was already struggling before the pandemic, due to increased competition from Nike and Adidas, poorly received designs, and diminishing returns from its flagship Curry shoes. Its revenue rose just 1% in 2019, with a slim profit -- compared to a net loss in 2018.

A woman shops for sneakers at a shoe store.

Image source: Getty Images.

In 2020, UA's revenue fell 15% to $4.5 billion as its first-party and wholesale retailers shut down during the pandemic. Its direct-to-consumer revenue, which accounted for 40% of its top line, rose just 2% as its brick-and-mortar declines wiped out its e-commerce sales.

UA"s gross margin expanded as it streamlined its supply chain and improved its product mix, but it still ended the year with an adjusted net loss of $120 million.

However, its revenue rose 35% year-over-year in the first quarter of 2021, its gross margin expanded, and it returned to profitability.  For the full year, it expects its revenue to rise at a "high-teen" rate, with high-teen growth in North America and low-thirties growth overseas.

It also expects its gross margin to expand for the full year and to remain profitable on a non-GAAP basis. Analysts had expected its revenue to rise 9% to $4.9 billion with an adjusted EPS of $0.14, but those estimates could be raised after its recent earnings beat.

Lululemon still faces fewer headwinds than UA

Lululemon faces some competition from hopeful challengers like Gap's (GPS -3.81%) Athleta, but it's still locking in shoppers with free yoga classes and community events, expanding its addressable market with men's apparel and shoes, and even challenging Peloton (PTON -4.57%) in the remote workout market with a connected smart mirror.

Lululemon's firm long-term projections, expanding gross margins, and growing store count all indicate it still has plenty of pricing power in the high-end yoga apparel and activewear market.

Meanwhile, UA is still growing at a slower rate than Nike. Nike's revenue fell 4% in fiscal 2020 (which ended last May), but analysts expect its revenue to rise 16% this year, and for its earnings to nearly double. Adidas' revenue fell 16% in 2020, but it expects its revenue to rise by the "mid to high-teens" on a constant currency basis in 2021 -- which suggests it will match UA's growth.

UA seems optimistic about a recovery this year, but it could still struggle as Nike and Adidas resume their direct-to-consumer expansions -- which include big e-commerce upgrades, fresh marketing campaigns, and new store openings in urban areas.

Why is UA outperforming Lululemon?

Based on these facts, Lululemon seems like a more appealing investment. However, the recent rotation from growth to value stocks, which seems to be driven by rising bond yields, favors UA.

Lululemon already trades at 40 times forward earnings and eight times this year's sales. UA trades at 66 times forward earnings, but its recent losses temporarily skewed that multiple higher. In terms of revenue, it only trades at two times this year's sales.

In other words, Lululemon is taking a breather because the market favors value stocks, while UA is gaining more attention as a turnaround play -- especially because its core North American business is finally stabilizing.

But Lululemon is still the better long-term investment

UA has gotten more attention from value-seeking investors this year, but I still believe Lululemon is the better long-term investment. Its higher price-to-sales ratio might limit its gains this year, but its business remains more stable than Under Armour's.

I personally believe many of UA's old problems could resurface after the pandemic. If that happens, the bulls will likely charge back toward Lululemon again.