Under Armour Inc (UA): “I Will,” or Maybe I Won’t

Page 1 of 2

Under Armour Inc (NYSE:UA)I have a difficult time not buying stock in companies when I buy their products on a regular basis. One such company is Under Armour Inc (NYSE:UA). My personal experience with Under Armour clothing and shoes is that they are very high quality and very comfortable. In fact, since my wife and I tried Under Armour shoes, we have recommended them to almost everyone we know. However, recommending Under Armour Inc (NYSE:UA) stock is a little more difficult.

This Is a Great Company That Could Do so Much Better
Don’t get me wrong–I’ve owned Under Armour stock in the past, and been very pleased with the results. However, once the stock gotten past a certain valuation, I could no longer justify continuing to own the shares at such lofty prices. There are several issues facing Under Armour Inc (NYSE:UA), and in an industry with competition such as Lululemon Athletica inc. (NASDAQ:LULU) and NIKE, Inc. (NYSE:NKE), the company can’t afford to be second best at anything.

When a company reports revenue growth of 23%, and this is evenly spread across each of their divisions, you would expect good earnings growth as well. However, due to promotional spending and incentives, Under Armour saw a 50% decline in diluted EPS. For a stock selling at a forward P/E ratio of 40.51, a decline in earnings like this should be a red flag.

Consistency in Revenue and Earnings Growth
The first thing investors need to keep an eye on is Under Armour Inc (NYSE:UA)’s earnings growth rate. Currently, analysts expect the company to grow earnings by just less than 21% in the next few years. In past quarters, the company exceeded 20% earnings growth. However, looking at the 50% decline last quarter, investors need to see if the company can get back on track.

When you look at Under Armour’s peer group, Lululemon Athletica inc. (NASDAQ:LULU) is expected to grow earnings faster than Under Armour at 22.24%, versus 20.83%. NIKE, Inc. (NYSE:NKE) isn’t expected to grow as fast as these two companies at about 10% EPS growth, but Nike is also a much larger company as well.

It’s acceptable for the company to show a large decline for one quarter based on certain expenses, but if this becomes a trend, Under Armour Inc (NYSE:UA) would be in serious trouble.

A second item to watch is continued momentum in revenue growth. Analysts are generally expecting an over 22% increase in revenues this year from the company, and anything less would be a major blow to investor’s confidence. In fact, Under Armour is expected to grow revenue faster than Lululemon, from which analysts expect 21% revenue growth. In contrast, NIKE, Inc. (NYSE:NKE) is only expected to grow revenue by 4.9%.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!