Apparel retailer Under Armour (NYSE:UA) popped on Aug. 22 thanks to a positive analyst report that set a price target of $75 — well above its then-$52 share price. Since then, the stock has gained 36% to $70.86. Is Under Armour a buy now, or is it too late?

Canaccord analyst Camille Lyon triggered this excitement with a report that initiated coverage of Under Armour on Aug. 22 with a “buy” rating and $75 price target. In the report, Lyon wrote that she believes Under Armour has “a solid growth path ahead. The company has an aggressive factory outlet growth strategy, a good position in the cotton-based clothing market and an emphasis on new products.”

Is this enough to get you to invest? No. But here are two reasons to consider it:

• Great earnings reports. Under Armour has beaten analysts’ expectations without fail, doing so in all of its past five earnings reports.
• Increasing sales and profits and cash-rich balance sheet. Under Armour has been increasing sales and profits. Its revenue has risen at a 26% compound annual rate, from $431 million (2006) to $1.1 billion (2010), while its net income has increased at a 14.9% annual rate, from $39 million (2006) to $68 million (2010) — yielding a slim 6% net profit margin. It has a mere $9 million in debt, and its cash rose at a 30% annual rate, from $71 million (2006) to $204 million (2010).

Two reasons against:

• High valuation. Under Armour’s price/earnings-to-growth ratio of 1.86 (where a PEG of 1.0 is considered fairly priced) means its stock price is expensive. It currently has a P/E of 47.9, and its earnings per share are expected to grow 25.8% in 2012.
• Under-earning its cost of capital — and not improving. Under Armour is earning less than its cost of capital — and it’s not making progress. How so? It’s producing no EVA momentum, which measures the change in “economic value added” (essentially, after-tax operating profit after deducting capital costs) divided by sales. In 2011, Under Armour EVA momentum was 0%, based on six months’ annualized 2010 revenue of $868 million, and EVA that fell from six months’ annualized 2010 -$31 million to six months’ annualized 2011 -$32 million, using a 12% weighted average cost of capital.

Under Armour looks too pricey to me, and its inability to out-earn its cost of capital is another reason to pause. It might be worth revisiting if the price comes down or its earnings growth accelerates.

Peter Cohan has no financial interest in the securities mentioned.