During the past year. both Nike (NYSE:NKE) and Under Armour (NYSE:UAA) have reported impressive growth in year-over-year revenue and income, thanks to a rising U.S. athletic-wear market and the decline of Adidas (NASDAQOTH:ADDDF) brand athletic gear in the United States. Both companies have seen a lot of growth in the key segments, each has advanced its market share, and investors in both companies have been rewarded. But with 2014 behind us, which company is going to be the investors' winner in 2015?
Under Armour: The underdog with momentum
Under Armour, which has been around for less than half as long as Nike, is still the underdog in the sports-apparel fight. While Under Armour overtook Adidas last year as the second largest sports apparel company in the U.S., it still has far less market share than Nike.
Yet even from its underdog position, the company has seen explosive growth recently, reporting around 30% year-over-year revenue growth for each of the past four quarters reported. Overall, the company posted about 27% growth in year-over-year EPS in 2014 and has guided for 12% to 15% year-over-year income growth for 2015.
The company is continuing to aggressively pursue the footwear segment in particular. Given the company only has 3% of the total U.S. footwear market, there could be plenty of growth left for Under Armour to keep reporting such large growth in this segment.
Over 90% year-over-year revenue growth in the company's international sales in the past quarter also helped the company's overall growth. Though international sales are only about 10% of the company's total sales, again this could be a good thing, as there is still a lot of room for the company to keep posting these growth rates for some time. Expect this number to be a contributing factor to the company's success in 2015.
In terms of new items and operations to be expected from Under Armour in 2015, look for a new hardware device, in collaboration with HTC, to go along with its recently released fitness-tracking app called Record. Also expect more use of its marketing plans, such as its "I Will What I Want" campaign geared toward women, to help the company get more attention.
Nike: The market leader with surprising growth
Nike is a behemoth in the world athletic-apparel market. Nowhere is this truer than with its footwear segment. Nike has a reported 60% market share for U.S. athletic footwear and around a 25% share of the global market. While Under Armour has grown substantially in its shoe sales in the past few years, its substantial growth has meant just increasing to not even 3% of the total U.S. footwear market and an even smaller percentage worldwide.
So while Nike is the clear market leader in athletic apparel, and by far the biggest company already, it still is posting surprising growth rates. In the most recent quarter, the company increased revenue 15% year over year and EPS 25% year over year. The company has guided for 2015 income growth in the high teens.
Nike's revenue growth is less in terms of percentage than Under Armours recent growth, but consider that Nike's total year-over-year revenue increase in the recent quarter was still more than 5 times as much as the total year-over-year revenue increase Under Armour posted last quarter. But income is much more important for investors seeking return, and Nike's most recent EPS growth was very close to what Under Armour posted: 25% versus 27% year over year, respectively.
This year, Nike is set to release a new line of Air Max 2015 running shoes, as well as new footwear in golf and football. But the most exciting new release expected this year are self-tying shoes, real-life working models of the shoes Marty McFly wore in the movie Back to the Future 2.
The best play in 2015: Follow the value with Nike
Both of these companies have exciting products in the pipeline, interesting campaigns in the works, and plenty of growth left to please both customers and investors. But bigger isn't always better, and for investors looking for solid returns over the long run, often it's a smaller company with plenty of room to grow that's the right option for long-term appreciation.
However, while looking for the right play in terms of value, it's hard to believe that the small amount of more growth Under Armour is posting is worth so much more than the growth Nike is posting in terms of share price to earnings. At a P/E of 87, Under Armour is very expensive. While Nike's year-over-year growth isn't quite as large as that of Under Armour, its price of just 27 times earnings, which includes a dividend that Under Armour doesn't offer, is much more attractive.
For that reason, Nike still looks like the winner in this matchup.
Bradley Seth McNew has no position in any stocks mentioned but has walked (run) a mile (many miles) in each companies' shoes (literally). 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.