Both Under Armour and Fitbit stocks are trading at dramatically lower prices than they were just a few years ago. But shares are outperforming the market so far in 2018 as investors have grown less pessimistic about their businesses.
So which of these rebounding stocks makes the better buy today?
Let's take a closer look.
Under Armour vs. Fitbit
|Company ||Market Cap ||Sales Growth ||Gross Profit Margin ||Price-to-Sales Ratio ||52-Week Performance |
|Under Armour (NYSE: UA) (NYSE: UAA) ||$10 billion ||3% ||45% ||2.1 ||3% |
|Fitbit (NYSE: FIT) ||$1.8 billion ||(26%) ||43% ||1.1 ||44% |
Data sources: Company financial filings and S&P Global Market Intelligence . Sales growth and profitability figures are for the past complete fiscal year.
Taking their lumps
The past fiscal year brought significant challenges to both of these businesses. For apparel giant Under Armour, rapid demand shifts in the core U.S. market left it with a glut of inventory that customers just weren't willing to pay a premium price for. As a result, sales dropped 5% in its North America region and only rose slightly overall due to a 46% spike in its international business. Under Armour also posted profitability declines and an overall net loss in 2017 in what CEO Kevin Plank called a year of "tough decisions" for the business.
Image source: Getty Images.
Fitbit faced similar issues, but its struggles had a more dramatic impact on its smaller, tech-based sales footprint. A shift in demand away from fitness trackers and toward smartwatches caused sales to plummet by 26% in 2017 as the company's product lineup failed to resonate with customers. Fitbit sold just 15 million devices last year compared to 22 million in the prior year. The company managed a few financial wins, including rising gross profit margin and higher average selling prices. Yet it still posted its second straight year of painful net losses.
Finding their footing
Those difficult days appear to be in the rearview mirror for both companies. Under Armour kicked off 2018 by showing flat sales results in the U.S. market , slower declines in gross profitability, and a profit after adjusting for its restructuring spending. These improvements are partly due to adjustments that the company has made over the last year, and partly thanks to a strengthening industry that's lifting results for peers like Nike , too.
As for Fitbit, the fitness device specialist recently posted a dramatic spike in gross profit margin as its sales tilted toward higher-priced smartwatches. CEO James Park and his team expressed confidence back in early May that their new lineup of products would be a hit with customers, and early indications seem to back up that bluster .
Betting on a rebound
Fitbit's focused product lineup means that the company has a better shot at dramatically outperforming short-term expectations than Under Armour does. After all, if the Versa smartwatch is a big hit, revenue could easily surpass the $1.5 billion in annual sales that management had forecast before the product started selling in stores. Under Armour's pace, meanwhile, isn't likely to deviate much from the modest gains in sales and profitability that executives affirmed in early May.
Those trends make Fitbit and Under Armour attractive stocks for very different reasons. Yes, both formerly high-flying businesses are on the rebound. A Fitbit investment, however, is a high-risk, high-reward bet that the company can deliver a string of successful tech product launches that pushes the business back to overall profitability as early as 2019.
Yet I'd rather be holding Under Armour stock, on the presumption that improving industry trends, and a new focus on direct-to-consumer sales, will eventually put the retailer back on equal footing with peers like Nike. Its business isn't likely to be nearly as volatile as Fitbit's over the coming quarters, but I see that stability as a good reason to prefer Under Armour shares today.
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Demitrios Kalogeropoulos owns shares of NKE, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool owns shares of and recommends Fitbit, NKE, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy .