Under Armour Inc (UA) is a force on Wall Street. Shares of Under Armour are up an amazing 62% year-to-date in 2014, and up about 200% since early 2013 accounting for a UA stock split earlier in 2014.
Critics will point to the fact that Under Armour stock is still dwarfed by Nike (NKE), which has a market cap of more than $68 billion to just $15 billion for UA.
Bears will claim the forward price-to-earnings ratio of 58 based on FY2015 earnings is way too rich.
But investors are paying big premiums for growth in the stock market right now, and Under Armour stock continues to prove that it is a powerful engine of both top-line growth and earnings expansion in an otherwise difficult environment.
Here’s why I think UA stock will keep running, and why the sports brand is a buy even at these elevated levels:
Strong Earnings: Under Armour stock just posted its 17th consecutive quarter of 20%-plus revenue growth. I’ll parse that in case you don’t get the power of this: For more than four years, UA stock has grown its top line. And for those four years, it has grown at more than 20% each quarter when compared with the same period a year ago. That’s simply amazing.
Strong Guidance: If this wasn’t enough, back in July, management also raised guidance for FY2014 … for the third time this year! The forecast is now for a 28% to 29% revenue increase, up from an already brisk 24% to 25% range. When you beat this consistently but still consistently raise targets, that says a lot.
Industry Tailwind: If you think the threat of Nike is too much for Under Armour, keep in mind that the growth in high-end athletic apparel is brisk enough to accommodate both companies. Athletic footwear sales have nowhere to go but up, and a host of other companies are crowding into active wear — from Lululemon (LULU) to mainline retailers like The Gap Inc. (GPS) — to cash in. Even if Under Armour wasn’t such a force, UA stock still could see organic growth simply as the space grows in kind.
Now, apparel is notoriously a fickle business and it’s going to be crucial for UA stock to keep up with consumer tastes. But the fact that Under Armour is winning increasing notoriety with big branding wins including young golfer Jordan Spieth and the football program at Notre Dame shows it has the firepower to do just that.
UA stock has a huge tailwind, and the brand is clearly en vogue with Americans at the gym and on the golf course.
Who knows when the ride will stop, but immediately after this great earnings report I think it’s safe to say Under Armour stock will keep rising for the near term.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
