UA Stock Is Still Generating Momentum

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Sportswear and equipment juggernaut Under Armour (UA) surprised almost everyone with a a very strong second-quarter earnings report last week.

underarmour ua 185I say almost everyone, because I wasn’t surprised that UA continues grow like its a small-cap biotech rather than a respectable mid-cap player.

Many people have looked at its performance — much like the broad market’s — and are convinced it can’t keep up its consistently impressive growth. The stock is up 965% in the past five years.

Year to date, the growth has slowed to a “meager” 45%. But critics note that it’s trading at a price-to-earnings ratio of 107, and that’s unsustainable for a company with a $21 billion market cap.

And for most companies I would agree. However, UA is in a very unique position.

Just the market for sportswear and shoes in the U.S. was $36 billion last year. Globally, estimates put it beyond $1.7 trillion.

There are plenty of growth opportunities both domestically and internationally for UA. And it’s already taking advantage. In the last quarter, the company reported global revenue was up 93%.

But UA isn’t waiting on diversifying its global footprint. It’s also moving aggressive in on other crucial technological fronts.

If you recall a lesson from another consumer stock, WalMart (WMT) stayed alive during tough times by beefing up its online sales efforts. Target (TGT) didn’t move as quickly or aggressively and floundered.

UA has heeded this lesson in online sales and has kept up a strong push for its direct-to-consumer (D2C) business. Its D2C business was up 33% for the quarter and now represents 32% of all UA revenues.

Its sportswear apparel business was up 23% in the quarter and its shoe revenue came in 40% higher than a year ago. Last quarter sales were up 44%.

Actually, the shoe revenue this quarter was projected to be even higher with the launch of the new basketball shoe endorsed by Golden State Warriors star and NBA MVP Stephen Curry. There’s a good chance the shoes will have a positive carryover to third-quarter numbers as well. And the company continues to sign big-name U.S. and international athletes to its line.

But it’s biggest potential lies in a new, disruptive sector: smart materials and clothes. Smart clothing is just coming out of the research and development phase and into mass-produced clothing that you can buy in the store. And it you think smartwatches are a big deal, wait until this trend heats up. The price points will make them more accessible to more people and they will buy more than one.

But it’s not going to be Apple (AAPL), Google (GOOG. GOOGL) or Yahoo (YHOO) that are the players in this trend. It’s going to be sportswear companies, particularly UA.

In early February it announced the purchase of two of the largest free fitness apps in the world, Endomondo and MyFitnessPal.

MyFitnessPal has 80 million users and Endomondo has 20 million users. Both will be incorporated into UA’s current UA Connected Fitness line.

It also cut a deal with phone maker HTC to develop a fitness band, the first fitness product developed for HTC. This will help it move into Asia with the help of an Asian brand.

A 106 P/E ratio is certainly high. But UA continues to deliver strong numbers in every market it’s in. It can’t last forever, but for now it’s time to let the profits run.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/ua-stock-is-still-generating-momentum/.

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