How High Can Under Armour Fly?

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Shares of Under Armour (NYSE: UA  ) hit a 52-week high yesterday. Let's look at how it got here and whether clear skies are ahead.

How it got here
If consumers are cutting back in the current environment, they certainly aren’t cutting back on athletic wear. Under Armour’s second-quarter revenue growth of 27% and solid profit of $0.06 per share, despite a seasonally weak quarter, has driven the stock to a new high and the momentum doesn’t appear to be slowing down. The company raised its full-year outlook to 22% to 24% growth in revenue and an increase in net income of 26% to 27%. 

Over the last five years Under Armour has done well, but it still hasn’t been the hottest athletic wear company around. lululemon athletica (Nasdaq: LULU  ) has taken over the yoga market with its swanky clothing, and its stock has run circles around Nike (NYSE: NKE  ) and Under Armour.

UA Chart

UA data by YCharts

As I said above, athletic wear is performing well despite the economic situation, and growth at Under Armour, Nike, and Adidas (OTC: ADDYY) has been strong year over year. In that pack, Under Armour has been able to separate itself with higher growth, while maintaining strong profits and return on assets, which is why the company’s forward P/E is so high.


Quarterly Revenue Growth

Profit Margin

Return on Assets

Forward P/E

Under Armour 26.8% 6.2% 11.8% 33.9
Nike 12.2% 9.2% 12.5% 16.3
Adidas 16.8% 5.4% 6.5% 13.9
Lululemon 53.0% 17.9% 29.5% 27.3

Source: Yahoo! Finance.

The question now becomes whether or not Under Armour is worth the premium over Nike despite lower margins.

What's next?
In my mind, there doesn’t appear to be any slowing down for Under Armour. The company has quickly gone from a niche player in athletic wear to offering something for nearly every sport and every occasion. The current P/E ratio is a concern, but Under Armour is growing so fast that I think the company can live up to it.

CAPS investors are also bullish, with 2,698 players giving the stock an outperform rating versus 256 underperform calls. What do you think? Leave your thoughts in the comments section below.

Interested in reading more about Under Armour? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of lululemon athletica and Under Armour. Motley Fool newsletter services have recommended buying shares of Under Armour, Nike, and lululemon athletica. Motley Fool newsletter services have recommended creating a bear put spread position in Under Armour and creating a diagonal call position in Nike. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (2) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 08, 2012, at 10:26 PM, rabec1 wrote:

    I believe you failed to take into account UAs 2 for 1 split on your chart. I sold part of my holdings in UA for a 400% gain this week.

  • Report this Comment On August 11, 2012, at 6:44 PM, JohnAtlanta12345 wrote:

    I see a dip coming soon! Brenda Piper was newly appointed to the board of Director’s of Under Armour on July 1st, 2012. Ms. Piper is already being evicted from her Atlanta home. This personally shows instability in the upper level management at Time Warner and Under Armour. I cannot see how Under Armour could be a BUY when a newly appointed member of the board has legal issues. What kind of background check did this company do?

    Fulton County Magistrate Case Number: 12ED586597 It was easy to find online after I was told about it.

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