Under Armour Inc (UA) has become of victim of its own success in recent years.
Even last year, many analysts preferred UA to Nike Inc (NKE), even though NKE was delivering impressive earnings, quarter after quarter and expanding its market share outside the U.S., even with the strong dollar.
Under Armour was a growth darling. The logic was, if NKE is cranking, certainly UA stock will be a beneficiary of the same trends. And since UA is smaller (a market cap of $18 billion vs NKE’s of $103 billion), it’s more nimble and able to take advantage of new markets and opportunities faster.
Few people mentioned the fact that, even now NKE has a price-to-earnings ratio of 30; Under Armour’s is nearly 80. NKE is up 26% in the past 12 months; UA is up 8%.
The point is, it has been necessary for UA stock to take a breather, consolidate a bit and then move higher. At current prices, it’s still a good deal for long-term investors.
What Analysts Are Overlooking About UA Stock
One of the key arguments for Under Armour is the fact that its a generational firm and there’s already a generational shift underway. Nike increasingly represents “old” sports gear, while Under Armour is the “youth” brand.
And that is why UA is sponsoring so many college teams. Under Armour gear in hallways and on campuses is growing quickly. And the signing of professional basketball star Stephen Curry to its team has helped drive shoe sales by almost 100% in Q4 of 2015.
It’s also important to remember that Q4 net revenues rose 31% and net revenue was up 28% for the year. Not only that, but UA raised guidance for Q1 net revenues by 25% and full-year 2016 operating income by 23%.
There’s also some buzz about UA expanding into outdoor gear. That would likely be a very strong grower given all the people who have used UA’s products for years and trust the brand to deliver on performance.
The bottom line is, analysts can be fickle. They can love a stock and run it to the moon for years, then turn around and beat it down to within an inch of its life for a bad quarter. GoPro (GPRO) is a classic example of this; it lost 67% in the past 12 months as its market share thinned. The point is, dilution of market share was a given in the sector but no one seemed to notice … until they did.
But this is no time to throw in the towel on UA stock. The company is still in growth mode and continues to successfully exploit almost every sector it enters.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family 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.
