Better Buy: Under Armour, Inc. vs. Fitbit

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There's no denying that Fitbit (NYSE: FIT) and Under Armour (NYSE: UA) (NYSE: UAA) investors have seen better days. Both stocks are trading well below their all-time highs, though the timing of their tumbles out of market fancy are different. Fitbit shares are trading 87% below their all-time high established in summer 2015, but the stock appears to be on the comeback trail after moving higher in three of the past four months. Under Armour also peaked during the same summer that Fitbit topped out two years ago, but its 74% slide continues to grasp for a bottom. Under Armour hit yet another four-year low earlier this month.

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Both stocks peaked in the low $50 range around the same time, just as folks looking to lead active lifestyles were donning Under Armour performance athletic apparel and footwear, and tracking their movements with Fitbit devices hugging their wrists. These are different times now, at least when it comes to the popularity of Fitbit and Under Armour products.

Dealing with the reeling

Neither company is growing at the moment. Revenue slipped 5% to $1.4 billion in Under Armour's latest quarter, as a 2% increase in footwear and 1% uptick in accessories was no match for an 8% slide in apparel -- a big deal since it accounts for two-thirds of its revenue. This was Under Armour's first quarterly revenue decline in more than a decade, and its full-year guidance suggests a flattish showing in the current quarter. A restructuring in August weighed on its bottom-line results, but even on an adjusted basis Under Armour's profit of $0.22 a share fell short of the prior year's showing.

Fitbit is faring worse on the growth front. It has unleashed four consecutive quarters of double-digit percentage declines, including a 22% slide in its latest report. Fitbit's guidance midpoint suggests a modest return to growth in the fourth quarter, but it's also coming off depressed results from last year's holiday season. Fitbit posted an adjusted loss of $0.01 in the third quarter, and the midpoint of its outlook calls for a similar deficit in the current quarter. If it's able to land north of breakeven, it would be Fitbit's first quarterly profit in more than a year.

There are silver linings in both camps, and not just that one if not both companies may be in the process of growing revenue again during the current quarter. Analysts see mid-digit top-line growth at both companies in 2018. Under Armour and Fitbit experienced growth internationally in their latest quarters, and Under Armour's direct-to-consumer business continues to thrive despite the slide at its wholesale business.

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The long road back

Both stocks are unlikely to trade near their 2015 highs anytime soon. The valuations were rich then, and neither company is as dominant in its niche as it was at the time. Smartwatches and improving smartphones make dedicated fitness trackers less necessary and a throwback footwear brand is experiencing a resurgence at the expense of other athletic apparel and footwear makers.

Under Armour and Fitbit are innovators at their cores, so new products including Fitbit's recent rollout of its first true smartwatch and Under Armour's Curry 4 sneakers can always move the needle this critical holiday shopping season. Deciding the better buy boils down to whether you think it's a meandering premium fashion brand or a struggling device trend that has a better shot at bouncing back into favor. The instinct is to go with a brand, but Fitbit's innovative ways suggest that a hit product can always be around the corner. Fitbit's also making waves in digital health.

Risk-tolerant investors may find plenty of upside in Fitbit, but Under Armour is the sounder choice for risk-averse investors. Under Armour's revenue slide has been substantially lighter, and while Fitbit's trading at a lower multiple based on peak 2015 earnings for both companies, Under Armour has the clearest path to get back there over time.

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Rick Munarriz owns shares of Fitbit. The Motley Fool owns shares of and recommends Fitbit, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.