Under Armour Inc (NYSE:UA) stock, through the ring of the closing bell on Monday, had rallied more than 65% higher in the last year, more than quadrupling the 12% returns of the S&P 500. Hopefully that helps to put Tuesday’s 2% setback on the heels of the Under Armour earnings report into context.
Even though UA met earnings estimates and actually topped Wall Street’s revenue expectations, its full-year revenue guidance came in slightly below what Wall Street was hoping for.
In today’s market — and especially for a go-go stock like UA — that’s grounds for a selloff.
But while the broader market may look at the UA stock price and ask itself, “What went wrong here?” I see something different in today’s price action: opportunity.
UA Is One of the Best Plays in Retail
While this quarter’s results were more or less right in line with expectations, Under Armour remains on an enviable trajectory. Earnings per share fell 13% in the first quarter — largely due to currency headwinds — clocking in at 5 cents and matching expectations. Sales came in right around $805 million, topping calls for $802.5 million in the quarter.
Full-year 2015 revenue guidance just missed the $3.82 billion analysts were expecting, coming in at $3.78 billion instead. This is the figure sending the UA stock price lower today, but it also implies sky-high sales growth of 22.7%. Under Armour is definitively on the up-and-up.
It may take a decade or two to get there, or it may never happen, but every UA stock investor wants to see the same thing: Under Armour needs to become the next Nike Inc (NYSE:NKE). Admittedly, the two companies are worlds apart today, as the $30 billion in sales analysts expect from Nike this fiscal year dwarf Under Armour’s by a factor of 8.
While UA usurping NKE might seem like a long shot, it’s definitely doable. Last year, it overtook adidas AG (ADR) (OTCMKTS:ADDYY) to become No. 2 in the U.S. sportswear market. In the most recent quarter, international revenues roared 74% higher and footwear revenue jumped by 41%.
That last statistic is one of the most important for the UA stock price going forward. Not only does it show that its growth in the shoe market is accelerating — sales growth last year was 34% — the potential size of the market itself is massive. In the 11 months through Jan. 3, Under Armour’s U.S. sales totaled $2.6 billion.
The revenue for Nike’s Jordan brand over the same period? $2.5 billion.
While no one’s expecting Under Armour to sign the next Michael Jordan overnight, UA got a steal when it signed Golden State Warriors sharpshooter Stephen Curry to an endorsement deal in 2013.
Overlooked by major D-I colleges as a high school senior and spurned as a Top 5 NBA draft pick in 2009, Curry is the favorite to win the NBA MVP this year. With his Curry One line of shoes retailing at $120, it looks like Nike overlooked him as well. And with golfer Jordan Spieth, the newly crowned 21-year-old Masters champion, also on Under Armour’s payroll, the future looks bright.
Don’t read too far into this morning’s selloff: It’s an opportunity, not a weakness.
As of this writing, John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
