Out-muscled by the international powerhouses
Even after the recent growth, I don’t consider investment in Under Armour as an exhilarating business opportunity because of its lack of presence in the international market. Globally, Under Armour Inc (NYSE:UA) is still not capable of challenging the big guns like NIKE, Inc. (NYSE:NKE) and Adidas because the higher margin sales of these companies, driven by their brand’s strength, give them a competitive edge over Under Armour.
NIKE, Inc. (NYSE:NKE)’s multifarious range of products helps the company to generate revenue of more than $25 billion, indicating a rise of 8% in the fiscal year. Under Armour may give Nike a run for its money in the U.S.A., but there’s still a long way to go before it can challenge Nike globally.
Nike’s short-term investment increased $2.2 billion, as the company completed the sales of its Cole Haan and Umbro brands. Also, recent share repurchases of $1.6 billion indicates that NIKE, Inc. (NYSE:NKE) is determined to return the shareholders a good value.
Adidas, like Nike, has a strong presence in the international market and is more than capable of damaging Under Armour’s sales. Although Adidas is a Germany-based company, around 60% of its revenue is generated from the international market. The company reported an increase of 1% in revenue, while the earnings per share amplified by 6% in the previous quarter as compared to the preceding year.
The company is also planning to open around 100 new stores across the globe in 2013. The constant innovations, especially in the footwear segment, and increase in the number of stores imply that Adidas is trying to catch up with its primary rival, that is, Nike.
Adidas and Nike both are the official sponsors of some of the biggest soccer clubs in the world and the prominent fan base of those teams enables both the companies to easily outperform Under Armour.
Even after the healthy increase in Under Armour Inc (NYSE:UA)’s margins, I don’t think an investment in the company will be a good deal, mainly because of its lack of presence in the international market. Also, a P/E ratio of 55.04, as compared to industry average of 20.65, indicates that, the inflation in the company’s share price is not matched by its earnings. So, in my opinion, now may not be the right time to buy Under Armour’s stock.
The article Is This Stock Overpriced? originally appeared on Fool.com and is written by Ayush Singh.
Ayush Singh has no position in any stocks mentioned. The Motley Fool recommends Nike and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Ayush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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