3 Reasons Under Armour, Inc.'s Stock Could Rise

Under Armour stock has risen more than 1,000% over the past five years. Here's how it could go even higher.

Aug 20, 2014 at 10:07AM

In the world of athletic apparel, there's arguably no bigger winner over the last several years than Under Armour (NYSE:UA). The athletic apparel specialist is riding a wave of momentum following its stellar second-quarter report last month, which marked its 17th consecutive quarter of at least 20% top-line growth and sent shares up 15% in a single day.

In fact, anyone who purchased Under Armour stock around this time five years ago has seen their investment increase tenfold, absolutely trouncing the returns of both Under Armour's competitors and the broader market.

UA Total Return Price Chart

UA Total Return Price data by YCharts.

But that also raises the question: How could Under Armour stock possibly climb any higher? While there are no guarantees over the short term, here are three long-term reasons Under Armour stock could rise from here:

The world is Under Armour's oyster

First, consider the fact that Under Armour's international revenue grew an impressive 80% year over year last quarter. Even then, international markets still only generated revenue of around $51.6 million, or 8.5% of Under Armour's total second-quarter net sales of $609.6 million.

For perspective, last quarter Nike (NYSE:NKE) achieved international sales of more than $3.7 billion -- yes, with a "b" -- representing 53% of its total $7.02 billion in global Nike brand revenue.

And that's not because Nike is simply that dominant. Rather, it's because Under Armour is only now beginning to ramp up its capital expenditures to support international growth. That not only includes necessary investments for overseas supply chains and infrastructure, but also securing sponsorship deals with popular overseas names. That includes, for example, soccer teams like Cruz Azul and Toluca in Mexico, Colo-Colo in Chile, and England's Tottenham Hotspurs.

If Under Armour can ultimately translate the success of its brand in North America to consumers overseas, executing on this opportunity alone could yield huge returns.

Footwear is still in its infancy

But investors should also keep in mind that a huge piece of Nike's global success is its dominance in footwear. It makes sense, then, that Under Armour is fighting hard to grab market share with its own competing footwear offerings, which began just six years ago with the 2008 introduction of its line of cleated football trainers. 

Under Armour's footwear line has since expanded to virtually every other notable segment -- including basketball, baseball, soccer, lacrosse, sandals, hiking boots, and casual footwear -- and for the first six months of 2014 generated sales of $223 million. For reference, that's just short of the $239 million in footwear sales Under Armour saw for all of 2013. 

Once again, though, Nike currently remains the undisputed global footwear champion, generating footwear sales of $4.4 billion last quarter alone. But after Under Armour's second-quarter report last month, its founding CEO, Kevin Plank, made it clear he sees this as a challenge, stating, "We're still continuing to hunt down becoming the number one athletic footwear brand in the world."

Connected fitness is paying dividends

Finally, I think investors are underestimating the prospects for Under Armour's efforts in "connected fitness."

Specifically, you might recall Under Armour surprising many investors last November when it spent $150 million to acquire fitness app specialist MapMyFitness. I wrote at the time, "[F]or Under Armour, this just isn't about the money over the short-term. Instead, it's about building brand loyalty by interfacing more closely with its target audience."

Plank elaborated on that thought during Under Armour's most recent conference call, saying:

What the MMF acquisition is teaching us about today's athletic consumer is way ahead of our expectations, and consumers are engaging with the platform at a level beyond what we anticipated ... More importantly, our acquisition of MMF has given us a platform to get deeper into the conversation with potential technology partners around the intersection of proactive health and wearable technologies.

What's more, he says, MapMyFitness added over 1 million new users every month in the second quarter -- with one-third of its users outside the U.S. -- and is on pace to add 10 million new registered users in 2014. Any way you slice it, that's a huge number of people with whom Under Armour can now more effectively communicate its message.

Foolish bottom line

That's not to say Under Armour stock looks "cheap" based on traditional metrics. Shares currently trade at a premium of around 58 times next year's expected earnings, while analysts "only" expect it to grow earnings by roughly 19% annually over the next five years. At the same time, Under Armour has made a consistent habit of underpromising and overdelivering with each passing quarter, and shares of truly great growth companies like this seldom look inexpensive on the surface. For now, given the three reasons above, I'm convinced patient Under Armour investors still stand to be handsomely rewarded.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

Steve Symington owns shares of Lululemon Athletica and Under Armour. The Motley Fool recommends BMW, Lululemon Athletica, Nike, and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information