If you’ve been to the gym in the post-New Year’s sprint to shed the holiday pounds, you probably had plenty of company. January accounts for 12 percent of new gym memberships — the most of any month, according to the International Health, Racquet, and Sportsclub Association.
But if you were thinking of investing in athletic companies, don’t let the bustling locker rooms and crowded treadmills sway you. By February, check-ins on Facebook “gyms” or centers with “fitness” in the title drops 10 percent, the Wall Street Journal reported. That precipitous drop actually begins as early as the third week of January.
That doesn’t mean athletic gear, apparel and shops are a passing fad — the number of people participating in sports activity is projected to rise to 19.4 percent by 2020, according to IBISWorld research. It’s a broad industry with many changes that could impact your decision to invest. Consider these three trends before making any resolutions on your investment portfolio.
Technology redefines sports equipment. What’s considered an athletic stock these days has become muddied due to the growth of technology. Wearable technology, such as Fitbit’s (ticker: FIT) walking and running measurement tool, is one example of this confluence. Another is GoPro (GPRO).
Through its development of cameras built for action sports, GoPro built itself into a big name in the athletic world. When GoPro had its initial public offering in June 2014, the stock quickly rose from $24 to nearly $87 in less than four months. But since August, GPRO stock has shed 83 percent of its value, falling to less than $11 per share.
Oppenheimer analyst Andrew Uerkwitz says GoPro tried too hard to expand its footprint beyond the action-sports realm. Instead of focusing on building new products that would appeal to its snowboarder clientele, GoPro is trying to make the gear available to anyone. That strategy isn’t working because of the complexity of GoPro’s professional level video-editing suite. “Once [consumers] buy them, they realize how difficult it is to edit,” Uerkwitz says.
Instead, Uerkwitz says GoPro needs to step back and design more products for action sports enthusiasts, such as its Hero 5 camera that’s compatible with the Karma Drone. The company hopes to release both products this year. But others have already stepped into this field, offering advancements such as 360-degree footage capabilities.
That leaves the biggest brand in action sports cameras without a strong footing in its own market. “GoPro has been slow to react with compelling products to attack any of these categories,” Uerkwitz says.
The up-and-down ride of the stock can come with new technology advancements, but it’s also an example of how a little specialization could go a long way.
Sports retail can be found everywhere. What makes a sports retailer? It’s not one-spot shopping — some stores want you to think that’s what they are, like Dick’s Sporting Goods (DKS) or Sports Authority, but you can find similar products at Wal-Mart Stores (WMT) or online through Amazon.com (AMZN). And that’s especially true when it comes to apparel.
In fact, research firm IBIS found that the big four sports retailers — Dick’s, Academy Sports, Cabela’s (CAB) and Sports Authority — account for less than 40 percent of the sports retail market. While that means there’s some room for growth — Dick’s has managed to increase revenues by 17 percent since 2012 by investing in online and increasing the number of its stores — not all companies can boast the same figures.
Privately held Sports Authority missed an interest payment this month on its debt. While the company has tried to increase interest in its stores with partnerships, like one with Champion Sports — the brand owned by Hainesbrands (HBI) — it has failed to overcome the influx of online competition. This leaves Sports Authority in a position where there’s a “high probability of default in the company,” Moody’s analyst Michael Zuccaro says.
Brands remain the big draw. Despite the intrusion that stores have faced from online sales, apparel and footwear brands have created strong demand. You might have noticed this in the gym, with seemingly everyone wearing Under Armour (UA) or Lululemon Athletica (LULU) insignias.
“The customer still wants to identify with an athletic brand,” says BB&T Capital Markets analyst Corinna Freedman. “The logo and branding certainly says, ‘I care about my health and well-being.'”
This has allowed companies like Nike (NKE) to flourish. Even online, the Nike swoosh reigns. With $30.6 billion in revenues worldwide, it’s not easy for a company Nike’s size to continue growing. Yet it has set targets that would make most companies cower — Nike CEO Mark Parker says the company can reach $50 billion in revenues by 2020.
In the shorter term, Freedman is waiting to see what the company will unveil ahead of the 2016 summer Olympics. It has been four years since Nike unleashed innovation in the running market with the development of its Flyknit shoes. Typically, it schedules releases around the Olympics, and has already announced its Olympic Nike Air Retro shoe line.
All this is an effort to keep ahead of Under Armour, which grew 110 percent in the third quarter from 2012 revenues. Nike dwarfs Under Armour, and is offering a $12 billion four-year share repurchase program and a 1 percent dividend yield. “It’s the best-positioned stock for the market,” says Freedman, who set a target price for NKE stock of $74 — a 21 percent jump from its current price.
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3 Things to Work Out With Athletic Stocks originally appeared on usnews.com
