In 2015 it seemed as though nothing could go wrong in the sportswear and athleisure sub-sector in apparel. Then came 2016 and something hit the proverbial fan. Investors in Nike Inc. (NYSE: NKE) and Under Armour Inc. (NYSE: UA) both ran into their own woes. It may not be the case that athleisure is dead or dying, but we could easily be seeing a peak, or at least an area where gains of one company simply come at the expense of a rival.

One issue that wrecked many growth and financial efforts of apparel players in 2016 was the implosion of The Sports Authority, and there are not any major instances that are considered big 2017 risks with that magnitude. Lululemon Athletica Inc. (NASDAQ: LULU) may be somewhat contained versus outside distribution retailers, but the company could face rapid expansion opportunities if it chooses to take on more retail partners.

Nike

Nike was the worst performing Dow stock of 2016, and by far. Its simple price drop was almost 19%, and its total return including dividends screened out at −17.7% for a closing price of $50.83 on December’s last trading day. Nike has a lot of room to improve upon its weak dividend, even if it faces endless competition from the likes of such brands as Under Armour, Adidas and Reebok. The real question here is what investors should really expect in 2017.

If analysts somehow get back on track, something they missed in early 2016 and late in 2015, their consensus analyst price target of $62.00 would imply upside of 22% in 2017. That would make for a total return expectation of over 23%, if you include the 1.4% dividend yield.

What is amazing is that Nike beat earnings estimates in its latest quarterly report. Still, concerns over future orders linger, with a very competitive sportswear and athleisure landscape leaving the opportunity for everyone’s margins to compress.

What if analysts are just too pessimistic here, considering how much Nike can is expected to grow earnings ahead? Jefferies recently decided that Nike should be an investor Top Pick for 2017, with a $75 target price issued in late 2016. Also, Nomura has a $60 target on Nike shares, and other analysts were positive late in the month as well.

Nike raised its dividend payout by 10% (to $0.18 from $0.16 per quarter per share) in November, and the company could be a rather large beneficiary of repatriation of cash if potential Trump taxes bringing products in do not hurt the company. The company is also spending billions on promotional and endorsement activities that are larger than many companies on advertising and marketing segments.

Nike shares have a 52-week trading range of $49.01 to $65.44, and the market cap of $85 billion. Its dividend yield is 1.4%.

Under Armour

Under Armour shares ended the year at $25.17 after falling by 37%. The company is much younger than Nike, and it pays no dividend yet. Unfortunately, the Thomson Reuters data on analyst targets was not updated properly at the end of December and start of January. 24/7 Wall St. did go ahead and pull some of the more recent analyst targets for Under Armour, particularly since the company wants whatever market share it can take from Nike and rivals.

One thing that may be a boost for Under Armour is that it landed a massive deal with Major League Baseball. Still, it has not been able to capitalize of late on what would otherwise seem like solid growth with positive earnings that were viewed less positively than expected.

After the 10-year pact from Major League Baseball was announced, a potential game-changing event, Buckingham Research reiterated its Buy rating and its $50 price target. While this is not taking place immediately (2020), it is a positive driver ahead. That report said:

While there are no financial implications for several years, we think the new MLB deal with UA and Fanatics is a game changer for how leagues approach licensing deals. This is the first time a league is partnering with a retailer versus a manufacturer. This will allow leagues to capture a royalty from its partners based off of a potential retail margin rather than a wholesale margin. We expect royalty rates to go up because of this making the deals more profitable for the leagues going forward. It will widen the field for who potentially bids in the future.

Also in early December came a report from Macquarie with just a Neutral rating and a $30 target price. This was on speculation that Under Armour could logically partner with Jabil Circuit to produce footwear and apparel. That is after it speculated that Nike might eclipse more than 30 million shares in a deal with Flextronics.

Under Armour has a 52-week range of $23.51 to $46.53 per share and a market cap of $12 billion. Again, it does not have a dividend as its focus is on growth and investing for market share gains ahead. Analysts need to update their price targets, it seems, because a $44.00 consensus price target listed at Thomson Reuters would imply upside of 75%. That doesn’t appear realistic on the surface, and it seems like analysts did not lower their expected price targets anywhere close enough yet. It is also a case where many analyst target prices were merely not being counted when this view was created.

Lululemon

Lululemon Athletica also needs to be considered in this mix. This Canadian yoga-themed player has run into growth and quality control issues that wrecked the stock for a while. Still, its shares at one point last summer were up almost 100% from the lows of December 2015. Now they are closer to $66, and the $73.23 consensus analyst price target still would imply 10% upside.

One issue that is harder to evaluate is Lululemon’s valuation at 30 times expected earnings for the current year, and about 25 times next year’s earnings expectations. Many analysts keyed in on Lululemon in December after earnings. Merrill Lynch raised its rating to Neutral from Underperform, but Mizuho raised its rating to Buy from Neutral. Evercore ISI raised its rating to Buy from Neutral, and FBR Capital Markets raised its rating to Market Perform from Underperform.

The real issue that may be ahead is how many new markets Lululemon can enter and how many new products it can use to entice new buyers. Lululemon’s earnings looked like turnaround earnings, but the performance in the first half might have eaten into some of those gains. As far as whether Lululemon could grow more by focusing on other retail distribution chains, that opens the company up to further quality control demands, and it could easily eat directly into its own store sales.

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So, how do the prospects line up for the athleisure and sportswear markets?

The athleisure market remains rather competitive, and one risk is that each point gain in market share versus competitors may generate the same or even more of a drop in margins. Still, these three companies are projected to keep growing their earnings, and that means that growth investors will put on two hats to try to evaluate them as growth stocks or as potential value stocks. Advertising and promotional expenses may perhaps be the true outlier that makes evaluating profitable promotions harder. Stars bring street-cred and desire, but sometimes the contracts are at such high costs (or the athletes run into scandal) that you might wonder why they bother.

International markets remain a risk for all the companies as well. Another issue could come from entrance taxes on apparel imports coming into the United States under a Trump administration, but this still remains rather preliminary, and it is not known how much of this chatter versus real policies.

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