NIKE, Inc. (NKE), Under Armour Inc (UA): In Athletic Footwear, the Biggest Is Still the Best Investment

At 40 times forward earnings, Under Armour Inc (NYSE:UA) seems very expensive, but bear in mind that with an investment like this you’re paying for the company’s future earnings potential. With revenues of around $2 billion annually, one glance at the amount of market share that Under Armour could potentially capture reveals that the company’s future could be very bright indeed.

Foot Locker

Foot Locker, Inc. (NYSE:FL) is a viable alternative because it is a play on athletic footwear and apparel that does not limit your exposure to any one brand. While NIKE, Inc. (NYSE:NKE) is in fact Foot Locker’s largest supplier, the company also sells such brands as Timberland, Reebok, ASICS, Adidas, and yes, Under Armour.

Due to the general economic uncertainty surrounding consumer spending, Foot Locker, Inc. (NYSE:FL) trades at just under 13 times earnings, a nice discount relative to the growth projected over the next few years. Foot Locker has been allocating more of its resources to merchandising and brand marketing lately, and the efforts are already starting to show results. The company is projected to grow its earnings at a 10.5% rate going forward, which reflects projections of increased discretionary spending, higher average apparel prices, and stronger margins.

Get in or Get Out?

While I love Under Armour Inc (NYSE:UA) as a long-term prospect, realize that the company is still very speculative at this point, as is any company that trades at such a high valuation. I believe that the company will end up greatly expanding its product line and shareholders will reap the rewards, but this could take years to happen. While NIKE, Inc. (NYSE:NKE) trades at a premium valuation of its own, the company has such an established track record of continued growth that it’s very likely the company will be able to deliver on the market’s ambitious expectations.

The article In Athletic Footwear, the Biggest Is Still the Best Investment originally appeared on Fool.com and is written by Matthew Frankel.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Nike and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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