In the competitive spirit of college basketball's annual championship tournament, The Motley Fool brings you Stock Madness 2007! Our writers are making head-to-head arguments for their chosen stocks (but not necessarily investment recommendations -- this is, after all, a game), and you'll pick the winners with your article recommendations and Motley Fool CAPS ratings. Who will win the right to cut down the net? Let's tip things off and find out!

All right, let's get the two major knocks against Under Armour (NYSE:UA) out in the open right away:

  • The stock is too expensive.
  • Under Armour has major competition: Nike (NYSE:NKE), Adidas, etc.

The two are somewhat interrelated, of course. If Under Armour can't compete with the big boys over the long haul, then its current valuations are quite rich.

But I don't think that's the case at all.

Here's why
Under Armour is a premium company selling a premium product. It's only natural that investors should pay a premium price to get a piece of the action. Though Under Armour products are generally more expensive than those offered by Nike and Adidas, the company still commands a 75% market share of the compression performance apparel industry. In other words, consumers are willing to pay up for what they believe to be a superior product.

Secondly, it's an aggressive company led by a dedicated founding CEO with bold visions for his company. (Hey, that's worked for companies like Starbucks (NASDAQ:SBUX), Dell (NASDAQ:DELL), and Microsoft (NASDAQ:MSFT).) Under Armour didn't increase revenues from $5 million in 2000 to $431 million in 2006 by standing on the sidelines. Under Armour founder and CEO Kevin Plank is a former captain of the University of Maryland football team, so it's no surprise that he's got a little competitive drive in his blood.

Surely this drive helped fuel Under Armour's June 2006 foray into the Nike-dominated athletic footwear industry. The first launch was a line of football cleats, which were promoted well with the company's "click clack" ad-campaign. After just one football season, Under Armour has click-clacked its way into a 20% market share of the football cleat market. This spring, the company launched a lineup of baseball and lacrosse cleats as well.

Haven't we heard this tale before: Aggressive upstart CEO vows to take on Nike in a footwear race and comes up lame? Jim Jannard at Oakley (NYSE:OO) tried that before, and Oakley's footwear line never came close to competing with Nike. But unlike Oakley's footwear venture, Under Armour hasn't racked up tons of long-term debt to finance its initiative. In fact, Under Armour currently posts $71 million in cash, versus just $1.9 million in long-term debt.

If Under Armour can successfully gain traction in the athletic footwear industry, it might just surpass analysts' projected $758 million revenue mark for fiscal year 2008. If that comes to fruition, Under Armour shares, which currently trade at 60 times trailing earnings, may look cheap in hindsight.

Want more UA info?
In the next round, I plan to discuss Under Armour's financials and valuation in more detail. But before I can do so, Under Armour must advance past Natus Medical in the first round of The Motley Fool's Stock Madness 2007 contest.

You can help us decide the winner by logging onto Motley Fool CAPS, our online investing community, and voting whether or not you think Under Armour will "outperform" or "underperform" the S&P 500 going forward.

Hope to see you next week!

Read our opposing entry on Natus Medical, and see all our articles in the tournament.

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Todd Wenning owns shares of Starbucks. He is currently ranked 136 of 24,388 investors in CAPS. Under Armour is a Motley Fool Rule Breakerspick. Starbucks and Dell are Stock Advisor picks. Microsoft and Dell are Inside Value choices. The Fool's disclosure policy will keep you warm and dry in all weather conditions.