Under Armour Sets the Pace

Thanks to a fourth-quarter earnings miss, Rule Breakers pick Under Armour (NYSE: UA  ) is off more than 6% as I write.

And I can hear the value investors out there laughing. Under Armour, you see, is a favorite target for cheapskate all-stars in our Motley Fool CAPS investor intelligence database, where the stock is rated just one star out of five.

Why? Check out this pitch from Brian Lawler, who goes by TMFBreakerBrian in these parts:

"I like Under Armour's products but, then again, I also like Nike's (NYSE: NKE  ) exactly similar product. There's nothing special about what UA produces, and the company is valued like its torrid growth will continue for a long time."

Interesting thesis. Trouble is, torrid growth is more than just continuing -- it's accelerating. Q4 sales improved by 55% year over year. Net income, meanwhile, was up 200%. That compares with 25% on the top line and 32% on the bottom line in the same quarter a year ago.

Then there's footwear. Foolish colleague Anders Bylund ridiculed Under Armour's go at the shoe business when we dueled over the stock in November. Maybe he's right. Maybe Under Armour has zero advantage versus Nike or Reebok. But if that's true, then why are gross margins rising? And why is Under Armour's 50% gross margin six points better than what Nike is able to muster?

Besides, in its first year, Under Armour's footwear accounted for 6% of total revenue. Clearly, athletes and weekend warriors like what they wear.

Look, I get that, trading for 52 times 2007 earnings, Under Armour's stock appears expensive. But with fundamentals improving as they are, even in the face of brutal competition, isn't it time to stop sneering? Maybe the stock is actually worth the price, especially after a market pullback like the one today.

Catch your breath with related Foolishness:

David Gardner and his team of analysts have unearthed six stocks that have more than doubled in the first two years of Rule Breakers'market-beating service. Want to find out what they are? Test-drive Rule Breakers for 30 days.

Fool contributor Tim Beyers, ranked 955 out of more than 21,300 investors in Motley Fool CAPS, can't remember the last time he wore a pair of running shoes. He didn't own shares in any of the companies mentioned here at the time of publication, either. Get the skinny on all the stocks he owns by checking Tim's Fool profile. The Motley Fool's disclosure policy sets the pace for Wall Street.


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