3 Areas of Under Armour's Future That Look Especially Positive

Image source: Under Armour

Under Armour (UAA 0.74%) (UA 1.39%) shares got hammered following Q3 earnings. Though sales growth slowed slightly to 22% year over year, down from 28% year over year in the quarter prior, it was Under Armour's guidance on future earnings that seemed to spook investors. Earnings rose 28% year over year, but management said that it no longer expects to reach a previously stated goal of $800 million by 2018 because of heavy investments it was making in growth.

Even though short-sightedness on Wall Street has led to a 30% drop in Under Armour shares over the past year, here are three areas of Under Armour's earnings that look especially positive for long-term investors. 

Digital

Under Armour's Connected Fitness segment, which includes sales of its digital products, is tiny in comparison with its apparel and other segments at just 2.3% of total revenue -- but it's also the fastest growing. Over the past nine months, this segment's sales have grown 70%.

After acquiring multiple digital fitness mobile apps as well as developing its own in the past three years, Under Armour now boasts over 190 million users across its Connected Fitness platforms, such as MyFitnessPal and Record. The company is also busy creating new physical tech products to compliment their fitness app, such as a full suite of wearables announced earlier this year and, most recently, new heart rate-monitoring wireless headphones. 

Under Armour's investment in its digital fitness platforms and these new hardware plays have not been cheap, and that is part of the long-term investment approach that Plank says is leading to lower earnings guidance in the next few years. Still, it could lead to more sales across all of Under Armour's segments, not just digital specifically. Other than the chance to connect with consumers more deeply and help them to get healthier or better their sport -- boding well for Under Armour's core products -- it also gives consumers more chances to buy gear. For instance, the UA Shop app launched this summer takes data gathered about its users from their activity in Under Armour's other apps and makes specific gear recommendations that users can buy right from their phone. 

Under Armour's new Bandit 2 running shoes. Image source: Under Armour.

Footwear

Footwear is another area of Under Armour's current growth that looks especially attractive. While still less than 20% of total sales, the footwear segment sales grew 42% year over year as Under Armour has had success in basketball shoes through its Curry line and running shoes with multiple new lines launched this year. 

A 2008 Bloomberg article questioned if Under Armour was "mad" for challenging its big-name rivals in footwear, while noting Under Armour's track record of success in breaking into new categories with high-quality products. Eight years later, Under Armour's quarterly footwear sales have grown nearly seven times over, from $46 million in Q2 2008 to $279 million in Q3 2016.

Most recently, Under Armour launched its Curry 3.0 shoe, the next rendition of its most popular shoe, as well as various new running styles such as the Bandit 2, which has already received high industry ratings both in the U.S. and internationally. Other than basketball and running, training, golf, and other styles are each helping Under Armour to grow overall footwear sales.

International

Under Armour's international sales, which consist of those apparel, footwear, and accessory sales outside North America, grew 74% year over year during the quarter, following this year's summer Olympics in Rio. During the games, sponsored athletes such as Michael Phelps and Team USA Gymnastics created worldwide media buzz for the sportswear company, which seems to have helped spur international sales higher. 

China is the region to watch in quarters to come. "We continue to post strong growth across all our geographies, said CEO Kevin Plank during the earnings conference call, "While our business in EMEA continues to be strong, it's our Greater China market that remains the biggest growth story for our international business." Plank went on to note that Q3 sales in China were equivalent to sales for Q1 and Q2 combined, driven by fast-paced growth in basketball, running, and more. 

Buying in on this dip

Plank said that while the bears are focused on short-term earnings growth, he's leading his company for long-term growth by investing heavily in the future. He believes that the company will still meet its previously forecast sales goal of $7.5 billion by 2018, which would be about a 50% jump from the approximately $5 billion the company is expected to earn in 2016. 

Because of the worry that Under Armour's profit growth would come later than previously thought, the market has sold the stock off over the past year, and especially in the past couple of weeks. This could be a great chance for a late 2016 play for investors willing to look past the next few years and further into the future, as these three areas lead Under Armour to new heights.