What: According to S&P Capital IQ data, shares of Under Armour (UAA 1.87%) climbed an impressive 19.2% in 2015, even as the broader market ended roughly flat for the year.
So what: But as Under Armour investors know all too well, those gains didn't come easy. First, Under Armour enjoyed a strong start to the year: Shares rose more than 28% through mid-April, namely on the heels of a better-than-expected fourth-quarter 2014 report, and Under Armour's decision to spend $560 million to acquire fitness app makers Endomondo and MyFitnessPal.
But the fun wouldn't last long: Under Armour shares subsequently declined more than 12% from those highs in April after it turned in yet another solid quarterly report -- beating expectations on revenue, meeting them on earnings, and raising full-year revenue guidance. However, the market lamented that its raise still didn't quite bring Under Armour's new full-year outlook in line with Wall Street's lofty expectations. Even so, based on my experience taking advantage of similar such pullbacks before, I insisted at the time it was a perfect opportunity for long-term investors to step in.
Sure enough, Under Armour shares steadily rose from there, spurred by its impressive second-quarter beat and raise in July. By mid-September, Under Armour stock had risen more than 50% to fresh all-time highs.
Now what: The fun didn't last long, as Under Armour shares have pulled back hard since then. So far in 2016, they have all but given up the gains they locked in as last year came to a close. For that, investors can thank both a broader market pullback, as well as gross margin concerns raised in Under Armour's most recent (third-quarter) report in October.
I've already argued, however, that those concerns are largely overblown. In fact, that report contained largely stellar news. First, Under Armour's revenue grew 28% year over year, to $1.2 billion -- its first billion-dollar quarter, by the way, and its 22nd straight quarter of achieving at least 20% top-line growth.
Meanwhile, net income trailed that growth, rising "just" 13%, to $100 million, or $0.45 per share. But both figures easily outpaced analysts' estimates, and Under Armour followed by raising its full-year 2015 revenue outlook for the third time in as many quarters.
Within Under Armour's top line was a 23% increase in core apparel revenue, to $866 million, a 61% jump in footwear revenue, to $196 million, a 22% increase in accessories sales, to $104 million, and 9% growth in licensing revenue, to $24.3 million. But arguably most compelling was traction from Under Armour's smallest product category, Connected Fitness, which saw quarterly sales more than triple year over year last quarter, to $14.4 million.
Make no mistake: This still-tiny segment could have an enormous impact on Under Armour's growth going forward. In fact, only a week before its third-quarter report, I pointed out that increased clarity into Under Armour's Connected Fitness opportunity was key to giving management the confidence in September to accelerate plans to nearly double annual revenue by 2018.
That's not to say that Under Armour looks "cheap" as measured by most valuation metrics today. Shares currently trade around 71 times trailing 12-month earnings, and 51 times next year's estimates. But that's also not particularly concerning to me as a long-term shareholder, especially as long as Under Armour remains in investment mode to foster top-line growth and take market share from larger competitors.
Eventually, Under Armour will be able to let more of those investments fall to the bottom line. In the meantime, I intend to sit back and patiently watch as Under Armour implements its plans.
