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Lululemon (NASDAQ:LULU) and Under Armour (NYSE:UA) have become powerful brands and both have been regarded as the next Nike (NYSE:NKE) in the athletic apparel industry. But their popularity with investors has overvalued their stock prices based on a discounted cash flow valuation (15% discount rate), which is reflected in the Growth Price (DCF).

Even though Gildan (NYSE:GIL) seems to be the ugly stepchild of the bunch, it displays strong fundamentals despite being overvalued.

Lululemon Athletica

Lululemon is a designer and retailer of yoga-inspired athletic apparel. Lululemon has been able to maintain a strong retail concept with 142 locations and growing website sales. Most importantly, it's created a strong brand that is known for high-quality products and community-based marketing. This has generated a cult-like following of loyal customers.

In the latest quarter, revenue has risen 35.1% to $186.8 million, which largely beat Wall Street’s expectations. While Lululemon’s fundamentals may be impressive in the last quarter, the company remains overvalued. Thus, it’s important not to forget that Lululemon still runs a highly capital-intensive business with 162.56% of profits spent on capital expenditures, and that it remains in a highly competitive industry.

Investors should be wary of Lululemon despite its recent popularity on Wall Street.

Growth Price (DCF): $19.02

Current Price: $87.82

LULU is overvalued by: 361%

LULU’s Vuru Grade: 53.48/100. Find our full report here.

Under Armour

Under Armour develops, markets and distributes a wide array of athletic gear, apparel and accessories. Its products have become ubiquitous in professional sports and sporting goods retail outlets.

Under Armour management expects that revenue will continue to rise in tandem with increasing apparel sales that are expected to grow at 30% per year and its successful direct-to-consumer business. To get there, Under Armour has sought to encroach into Lulu’s market share as it's expanded its line of women’s Yoga apparel.

Potential investors should account for Under Armour’s four years of negative cash flow in the last seven years and the thin net income margins that peaked at 15.24% in 2001 and have been declining ever since.

Growth Price (DCF): $12.09

Current Price: $68.17

UA is overvalued by: 463%

UA’s Vuru Grade: 51.54/100. Find our full report here.

Gildan Activewear

Gildan sells basic athletic apparel that customers can customize and screen print to their own specifications. It's been able to develop an effective supply chain while offering high quality products at a reduced price.

Gildan’s basic athletic apparel has created an economic moat for itself. Its net income margins have been greater than Lululemon's and Under Armour's. It’s also important to note Gildan’s frequent stock buybacks, consistent positive free cash flow eight out of the last 10 years and strong balance sheet.

Growth Price (DCF): $26.11

Current Price: $33.29

GIL is overvalued by: 27%

GIL’s Vuru Grade: 53.39/100, Find the full report here.

Source: Forget Under Armour and Lululemon - Look at Gildan