Under Armour (Nasdaq: UARM) reported earnings for the third quarter earlier this week, and the numbers show a company still in a happy state of growth.
Net sales for the quarter surged more than 47%, helped along by some state tax credits. Operating income increased 52%. Net income increased 90%. For the last nine months, the company also saw double-digit increases across the board.
Under Armour delivered an impressive quarter. Not only were the growth rates spectacular, but the margins also increased -- and as we all know from reading the Fool, margins are vital to a company's success. In addition, the company strengthened its balance sheet in several important areas; cash and short-term investments rose, while long-term debt shrank.
However, a couple other areas on the balance sheet bear watching. Accounts receivable increased 52.8% year over year during the quarter. Inventory likewise ramped up 49.1%. An investor likes to see these lines grow more slowly, since that indicates a company that is quickly collecting cash and briskly selling merchandise.
Under Armour's latest 10-K shows that the company has been making strides in its cash flow. Whereas cash was entirely used for operations in fiscal years 2003 and 2004, fiscal 2005 saw Under Armour generate $15.8 million -- even after nearly $11 million of capital expenditures. The latest 10-Q, submitted back in August, however, shows that the company is once again using cash for operating activities. Changes in its working capital included large deductions from net income for accounts receivable and inventories.
Under Armour seeks to develop advanced sports gear that can help athletes manage extreme environmental conditions, building its brand and beating its rivals through innovation. Among other offerings, the company has a line of T-shirts designed to comfort the wearer in extremely hot weather. The earnings report definitely shows that the business is continuing to expand, and that its retail presence is increasing. Consumers seem to be warming to the idea that the company's equipment can enhance the athletic experience.
The stock, meanwhile, has had something of a run. Although it has pulled back a bit, along with the market in general, it's closer to its 52-week high than it is to the low. I personally think that Fools would probably be better off waiting for a pullback. I just can't see rushing into the stock after its run-up; its P/E-to-growth ratio is now quite high, even by conservative calculations.
Under Armour is obviously a strong brand right now, and it has done well by expanding margins and product lines. I think the company stands a good chance of being a solid long-term investment for shareholders. But because of its fierce competition -- its rivals include Columbia Sportswear (NYSE: COLM) and Nike (NYSE: NKE) -- I personally would need to see a sharp drop in the share price to become interested.
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Fool contributor Steven Mallas owns none of the companies mentioned. Yesterday, he was ranked 573 out of 11,991 investors in the CAPS system. The Fool has a disclosure policy.
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