Is Under Armour Inc (UA) Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Under Armour Inc (NYSE:UA) fit the bill? Let’s look at what its recent results tell us about its potential for future gains.

What we’re looking for
The graphs you’re about to see tell Under Armour Inc (NYSE:UA)’s story, and we’ll be grading the quality of that story in several ways:

Growth: Are profits, margins, and free cash flow all increasing?

Valuation: Is share price growing in line with earnings per share?

Opportunities: Is return on equity increasing while debt to equity declines?

Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s look at Under Armour Inc (NYSE:UA)’s key statistics:

UA Total Return Price data by YCharts

Passing Criteria	3-Year* Change	Grade
Revenue growth > 30%	116.8%	Pass
Improving profit margin	17.7%	Pass
Free cash flow growth > Net income growth	(8.7%) vs. 155.2%	Fail
Improving EPS	140.4%	Pass
Stock growth (+ 15%) < EPS growth	308.70% vs. 140.4%	Fail

Source: YCharts.
*Period begins at end of Q2 2010.

UA Return on Equity data by YCharts

Passing Criteria	3-Year* Change	Grade
Improving return on equity	24.9%	Pass
Declining debt to equity	72%	Fail

Source: YCharts.
*Period begins at end of Q2 2010.

How we got here and where we’re going
Under Armour Inc (NYSE:UA) doesn’t hit the finish line at a sprint, as it’s earned only four out of seven possible passing grades. The company’s top and bottom line have both grown significantly, but free cash flow hasn’t been able to catch up with the trend, and none of Under Armour’s fundamentals can match the rise in its share price at any rate. How might Under Armour pull its earnings and free cash flow back in line with sky-high stock prices? Let’s dig a little deeper to find out.

Under Armour Inc (NYSE:UA) has been facing tough competition in the brutally competitive sportswear niche, but the company has thus far held its own quite well. Under Armour Inc (NYSE:UA) recently grew its apparel sales by 23% — since this segment still accounts for three-quarters of revenue, it’s vitally important that it maintain momentum.