Athletic apparel stock Under Armour is up nearly 300% since early 2009, and up 37% year-to-date in 2012. Its fiscal 2011 revenue of $1.4 billion doubled the $725 million put up in fiscal 2008 — proving that the recession didn’t matter one bit to this company.
But with a trailing P/E of 51 and a forward P/E of 32, it’s clear that expectations are high. And eventually the bar is going to be out of reach for even this high-jumper of a stock.
Of course, there’s plenty of spring in UA’s step right now. In the first quarter, net revenues increased 23%, and net income rose 21% year-over-year. And on Tuesday, we could see another strong showing.
But Wall Street seems to be getting skeptical. UBS downgraded UA stock on June 21 to neutral from buy, joining the majority of analysts with a lukewarm view of the stock. At the end of June, Under Armour was sporting 12 hold ratings, compared to 10 buys and even one sell.
UBS’s target was still above $100 a share — a doubler from here — so let’s not act like Under Armour is doomed. But the cooling expectations are worth noting as part of a broader trend.
A lot of cash is at play in apparel, particularly in athletics. Under Armour has recently been riding high on strong shoe sales. But behemoth Nike (NYSE:NKE) isn’t going to take UA’s ascent lying down, and you can only launch so many new products to tap into consumers’ limited budgets.
TripAdvisor is a travel information and reviews portal that was spun off from Expedia (NASDAQ:EXPE) in 2011, and the sky has been the limit for this pick. The stock was the second-best performer in the entire S&P 500 for the first half of the year and one of the top 5 S&P stocks for Q2.
The run has been impressive, and may continue for a bit longer. But watch out for the risks.
One is competition. Yelp (NYSE:YELP) is a trusted brand in reviews, and clearly Google (NASDAQ:GOOG) has its eyes on the category after its 2011 purchase of the iconic Zagat restaurant guide.
Another risk is that growth has depended largely on international expansion. Right now, TripAdvisor is doing a good job introducing itself to new customers in new areas like China to offset soft Europe and U.S. sales. But expansion gets you only so far.
Lastly, while TRIP posted strong first-quarter revenues growth of 23% and topped expectations, earnings were only up about 2%. And since the company went public only in 2011 after its spin-off, there’s not a whole lot of track record to plot a long-term trajectory.
The forward P/E of about 25 on fiscal 2013 earnings isn’t out of this world. But it is a bit rich. Parent Expedia has a P/E of around 15.
Of course, any earnings at all are noteworthy. TripAdvisor is soundly profitable due to its booking partnership with Expedia, unlike Yelp or service reviewer Angie’s List (NASDAQ:ANGI), which haven’t figured out how to move beyond being a forum and into efficient monetization.
But as restaurant stocks have shown us time and time again, you can bank on expansion as a growth vehicle only up to a point. TRIP’s international growth engine can’t run forever.
Jeff Reeves is the editor of InvestorPlace.com, and author of “The Frugal Investor’s Guide to Buying Great Stocks.” Write him at email@example.com, follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks mentioned here.