Each daily wave of analyst upgrades, downgrades and initiations brings multiple sector calls. Some calls are mere updates, but in others analyst calls have important information that should be the basis for more in-depth research by investors. That was the case for a Wells Fargo call for Nike Inc. (NYSE: NKE) and Under Armour Inc. (NYSE: UA).

The Wells Fargo team of Tom Nikic and Ike Boruchow rated both sporting apparel players only with Market Perform ratings after a change in coverage. The brands are both loved, but valuation and competition in a crowded field may play a much larger role in the months and years ahead.

Wells Fargo sees Nike as one of the strongest consumer brands in the world. It sees continued opportunities for sales growth and margin expansion as well, but it sees “catalyst noise” on the horizon via the Summer Olympics, followed by stiffer competition from Adidas and Under Armour, and it worries that a premium price-to-earnings (P/E) multiple could make for a range-bound stock.

When investors hear that a stock is fully valued, many of those investors interpret that as the shares are now overvalued. That is at least how they treat the term on growth stocks, and Nike and Under Armour have both been incredible growth stories.

Nike was resumed with a Market Perform rating and a valuation range of $58 to $62 in the call. Pros here are constant innovation and having one of the clearest paths to long-term margin expansion.

Wells Fargo’s view is that Nike’s long-term outlook appears bright, while its financials could bring near-term noise. On the competitive front, these analysts worry that Nike is facing competition unlike anything it has seen for some time.

On Under Armour, the Wells Fargo valuation range of $38 to $42 was derived from 45 to 50 times fiscal year 2017 earnings estimates of $0.84 per share. That high earnings potential is said to be solely dependent on revenue growth, so any top-line disappointments will lower than expected valuation.

Another Under Armour issue is that the company has experienced significant management turnover recently. Cited were the resignations of the chief financial officer and of the head merchant in the past 12 months. The team said:

Under Armour’s top-line growth prospects are among the strongest in our space, driven by a combination of category tailwinds (strong athleticwear cycle) and various company-specific factors to help capture global market share (product innovation, new categories/distribution channels, Connected Fitness). That said, the company is investing heavily to support this expansion, which is likely to keep margins capped and puts the entire onus for earnings per share growth on the top line.

One warning is that at nearly 60 times forward earnings, Wells Fargo sees significant downside risk to the earnings multiple if revenue growth hits any speed bumps. Their view is that Under Armour’s premium valuations already reflect serious revenue growth prospects. The worry is that Under Armour shares could become range bound.

Nike shares were recently trading at $59.12, with a consensus analyst price target of $71.32 and a 52-week trading range of $47.25 to $68.19. Apart from this, the company has a market cap of just under $100 billion and a dividend yield of 1.1%.

Shares of Under Armour were trading at $39.14. The consensus price target is $54.00, and the 52-week range is $31.62 to $52.95. The company does not pay out a dividend, and its market cap only amounts to $17 billion.

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