Under Armour Inc: 3 Reasons UA Stock Will Continue to Outperform

Advertisement

Year-to-date, shares of Under Armour Inc (UA) are up a measly 4%. But when you compare UA stock to the S&P 500’s 2% decline since the start of the year, things don’t look so bad.

UA Stock: 3 Reasons Under Armour Will Continue to OutperformLooking at Under Armour stock from a wider angle, shares are up 11% over the last year, 48% over two years, 400% over five years and a whopping 1060% since March of 2006.

When compared to the market — down 4.6% over the last year, up 7.5% over two years, up 51% the last five years or a 55% gain since March 2006 — it’s hard to imagine how UA stock can continue the performance it has had.

I’m here to tell you that not only can it continue dominating the market, but that it will and I have three reasons why.

UA Stock: The Talent Is Strong With This One

Under Armour has a few of the top athlete’s available in sports. Stephen Curry, Jordan Spieth and Cam Newton are all relatively young, and not only successful athletes in their respected games, but championship winning athletes and this generation’s greatest up-and-coming stars.

Tom Brady, Gisele Bundchen, Lindsey Vonn, Michael Phelps and Clayton Kershaw are all other big household names Under Armour has promoting its brand. But if we just look at just Curry, Spieth and Newton, these are deals that not only have the potential to keep Under Armour down the path of profitability, but provide a glimpse at what could lead to much more down the road.

But before we get into that, let’s look at one key factor Curry and Spieth bring to the UA stock price.

Stephen Curry in and of himself is a basketball rock-star. The guy led the Warriors last season to the NBA finals, which not only solidified his greatness to basketball fans, but firmly put him on the map with the general public because he dethroned basketball icon and general celebrity “King James.”

But Stephen Curry hasn’t stopped there. This season his Warriors started off with 24 straight wins and are in contention of beating the NBA season all-time wins record of 72, which by the way was set by Michael Jordan’s Chicago Bulls in the 1995-96 season.

The hype Stephen Curry is getting is all season long, not just through the playoffs or around the finals. How many times over the course of a whole NBA season are fans going to see Curry wearing UA gear? Countless!

What Curry is doing for basketball and certainly UA, is what really no one else has done for basketball since Michael Jordan, who as of last year, more than a decade after playing his last NBA game, still sells more shoes than anyone else (yes that means both retired and current players, sorry Kobe and LeBron).

Spieth is sitting in a similar boat: He’s at the top of his game, is a marketer’s dream and as some PGA experts have stated he is doing more for the game of golf than anyone has done since (yes, another legend) Tiger Woods.

Spieth has won both the Master’s and U.S. Open, which both bring a similar notoriety to winning championship games in other sports. Spieth’s recent PGA win, coming in early January, made him just the third ever seven-time PGA tour winner before the age of 23. Of course, Tiger is one of the others. But with both Spieth and Curry, what is really interesting for UA stock investors is the guys we now compare them too, Jordan and Woods, were and are still both Nike (NKE) endorsers.

Nike has the old heroes, but Under Armour has the new heroes.

Under Armour Is Seeing Material Growth

The fact remains that these top athlete’s need to bring in customers, and from the looks of it they are!

In the most recent quarter, Under Armour reported a year-over-year revenue increase of 31%, marking 25 consecutive quarters of 20% annual sales growth. As for Stephen Curry’s impact, UA experienced a 95% increase in footwear sales last quarter, and now that unit represents 17% of Under Armour’s business.

Growth internationally is also picking up as sales jumped 85% in constant currency, helping increase international sales to 11% of total revenue. Furthermore, online orders represent almost 30% of revenue with 50% of online traffic in the U.S. coming over mobile.

Some investors often compare Under Armour with Nike, but that’s comparing apples to oranges.

Nike is a well-established company, UA is still young and cutting its own path. On a revenue basis, NKE did over $31 billion last year, compared to UA’s nearly $4 billion.

Furthermore, I don’t believe Nike has to fail for Under Armour to succeed. The athletic, health and fitness market is rapidly growing and is expected to continue growing, so both companies can comfortably grow without cannibalizing the other.

Looking specifically at UA stock, sales are expected to continue to grow in the future, but Wall Street analysts are concerned about higher cost in the near term as UA attempts to make major headways in the technological side of fitness and training, which leads me to my final reason.

UA Isn’t Stuck in the Past

The final reason Under Armour stock is going to continue to soar higher is the company’s focus on technology. In its most recent quarter, UA saw $53 million in revenue come in from its connected fitness unit — that’s a 177% increase from the previous year.

This is after UA has spent $710 million since 2013 on three fitness tracking companies, MapMyFitness, MyFitnessPal and Endomondo. While this unit currently only makes up 1.3% of Under Armour’s revenue, which will likely change since UA recently unveiled the HealthBox.

The HealthBox first showed up at CES in January and is now sold in stores for around $400, the box comes with an array of fitness tracking devices: the UA band which has been compared to the Nike Fuelband or a Fitbit (FIT), the UA Scale, which is a bluetooth and WiFi enabled scale and the UA Heart Rate, which is a strap that goes around your chest and monitors your heart rate.

Obviously, the fitness tracking market is a very competitive one, and Nike itself discontinued its Fuelband. But with the backing of the Under Armour name and heavy investments in the sector, this could be a material revenue catalyst in the coming years.

UA stock investors need to remember, though, that this unit may take a while to get off the ground and cost the company money in the meantime, so only long-term focused shareholders should be looking at this unit for growth.

Under Armour stock is one of the best winners of the past ten years.

I believe due to the three reasons laid out above, in addition to others, the stock will be one of the biggest winners over the next ten years. With an all-star lineup of athletes, a strong growth picture moving forward and technologically advanced equipment in the works, the future looks very bright for those whom own Under Armour stock.

As of this writing, Matt Thalman owned shares of UA stock. Follow him on Twitter at @mthalman5513.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/ua-stock-under-armour/.

©2024 InvestorPlace Media, LLC