Sizing up the competition
Under Armour's greatest competitive advantage is supposed to be its line of performance athletic clothing, which sucks moisture away from the athlete's skin to enhance performance in hot weather. The company started that market, but everyone from Adidas and its Reebok division to Nike
Clearly recognizing the danger of such a narrow focus, the company is trying to diversify now into football cleats and other assorted knick-knacks -- places where Nike and company have already staked out their massive market claims. Brilliant. I mean, if Adidas felt compelled to buy Reebok -- and neither one is exactly an underground operation -- just to get decent shelf space at Foot Locker
So that's the fierce competition, but it's hardly the whole story. Some stocks are priced for perfection. I'd say that Under Armor is priced way beyond that point. The stock trades today at 5.5 times trailing sales and a staggering 71 time trailing earnings. Future earnings, you say? OK, that drops the P/E ratio to just 54.
To put those numbers into some context, the price-to-sales ratios of Nike and Columbia Sportswear
Cash flow? What cash flow?
Oh, that's right -- we can't. Under Armour is sporting negative trailing free cash flows. Yet it is valued on par with Columbia, where the revenues and earnings are about three times fatter. That's just not gonna fly here. You know what happens to these highfliers when they hit their first snag -- they plummet right down to Earth, where they belong. It happened to Hansen Natural this summer, and to Apple Computer
- Read the bull argument
- Read the bullish rebuttal
- Read the bearish rebuttal
- Sound off on Under Armour in Motley Fool CAPS
- Vote for the winner
Under Armour is a Motley Fool Rule Breakers selection, and Columbia Sportswear is a Stock Advisor pick. Take a free 30-day trial to any of our services to find the performance investing apparel that best fits your portfolio.
Fool contributor Anders Bylund holds no position in any of the companies discussed here, but he looks good in a body glove. You can check out Anders' holdings if you like, and Foolish disclosure is always fairly valued.
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