Athletic apparel company Under Armour
Management continues to throw money behind its foray into the athletic footwear business. A better idea would be for Under Armour to tackle its current inventory problems before attempting to beat Nike's
Survival of the fittest
With inventories growing faster than sales, Under Armour could face steep markdowns on its current merchandise -- further depressing already thin profit margins. Rival lululemon athletica
I think it's a mistake not to consider Lulu a strong competitor in the athletic apparel space. True, the yoga company fits a niche market. But it's expanding into new segments including girls dance apparel and athletic gear for runners. Lulu's product line for men is also expanding, which puts it in closer competition with Under Armour.
Another retailer pushing into the space is Limited Brands
Net Profit Margin
Break a sweat
Investors want to see growth from these companies. But that may be a tall order for Under Armour considering the headwinds facing the company. Its stock continues to trade at a high price-to-earnings multiple, though not nearly as rich as Lulu's P/E.
Under Armour is also strapped for cash. The company's high-maintenance brand demands cash-heavy promotions and marketing efforts. High costs have led to Under Armour's negative free cash flow situation. Take a look at Under Armour's net profit margin compared to competitors, and our fears are compounded.
As my fellow Fool Austin Smith recently pointed out, Under Armour and Nike sell their products through retailers such as Dick's Sporting Goods
All three of these companies make great athletic gear. While I'm a fan of Under Armour's thermal tops and compression shorts, I can't get behind the stock. Why not invest in The Motley Fool's top pick for 2012. I invite you to read this free report, available for a limited time, in which our leading analysts' reveal their top stock for the year ahead. Click here for instant access -- it's free.