I Was Wrong: Under Armour, Inc. (UA) Stock Is a Screaming Buy!

Under Armour, Inc. (UA, UA.C) stock is going bonkers on Thursday, after the sports apparel giant reported yet another fabulous quarter of earnings. Like the company’s highest-profile celebrity endorser, soon-to-be back-to-back NBA MVP Stephen Curry, Under Armour shares are a joy to watch.

I Was Wrong: Under Armour, Inc. (UA) Stock Is a Screaming Buy!After what Wall Street likes to call a sound “beat and raise” — Under Armour beat expectations and raised guidance going forward — UA stock is up heavy in early trading, having gained over 7% at the time this article was written.

On several occasions, I’ve expressed some real reservations I had about Under Armour stock, and before both third- and fourth-quarter earnings, I’ll admit, I suggested investors stay far away from UA stock.

Well, I’ve seen the light. I was way off: Under Armour may be one of the best long-term growth stocks to buy in the entire market.

Chef Curry Heats Up UA Stock

The beats: Under Armour revenue surged 30% in Q1, to $1.05 billion, beating analyst estimates for $1.02 billion. Net income surged 64% to $19 million, or 4 cents per share, which was double the consensus estimate for 2 cents.

And of course, the raise: UA boosted full-year 2016 revenue guidance from $4.95 billion to $5 billion.

If you’ve been an Under Armour shareholder for more than a few weeks, you know that if the per-share earnings numbers seem low, it’s because UA stock effectively underwent a 2-for-1 split on April 7. Instead of doubling the share count, Under Armour created a new class of nonvoting stock called Under Armour Class C shares, and paid that out in a dividend to shareholders.

All that’s to say if you’re looking at historical UA stock returns, you’ll have to add the prices of the two stocks together, and compare that to pre-split UA prices. After today’s rally, Under Armour shareholders are up more than 14% year-to-date now.

Digging into the numbers, Under Armour was strong across segments: Apparel net revenue jumped 20% to $667 million on the strength of training and golf, while footwear net revenues surged a remarkable 64% to $264 million on the overwhelming success of the Curry signature basketball line. Accessories revenue also jumped 26% to $80 million as consumers snapped up headwear and bags.

Over the past year, I’ve badmouthed UA stock multiple times. Every time, my rationale has been a cool, calm analysis of Under Armour’s frothy valuation, which I argued was unsustainable.

The truth is, growth stocks can be tricky to value using traditional fundamental analysis. Especially if you’re investing for the long-term. That’s because the growth trajectory is so unpredictable, and near-term results such a small part of the story, that using price-earnings or even forward P/E ratios is almost meaningless.

That’s how I feel about UA stock. Under Armour is at the point where we should realize that it’s not going away anytime soon. Its signing of Stephen Curry has proven to be a game changer for the company, and could make Under Armour a legitimate play on footwear, whereas now it’s predominantly apparel.

Obviously Nike Inc (NKE) is the biggest competition, and it has vastly more resources at its disposal to sign and retain top-tier athletes that sell shoes and apparel.

But Under Armour has arrived, and if Curry’s shoes continue to fly off the shelves and become legitimately popular, that “cool factor” could attract more athlete endorsements over time. Plus, look at it this way: Which stock do you think will double first? The $100 billion Nike, or the $10 billion Under Armour?

The answer, unequivocally, is Under Armour. It may or may not be “overvalued” in the short term, but over the next five to ten years? I have no doubt UA stock will continue to be a killer performer, just like fellow Charlottean Steph Curry.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/under-armour-ua-stock-buy/.

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