At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

Read the disclaimer
Everything I've predicted about Under Armour (NYSE: UA) for the past several months has been wrong!

Well, maybe not the underlying facts. The company's still burning cash, and its shoes aren't selling. It's got commodity concerns in cotton, and its unsold inventories are stacked to the sky. Regardless, the stock's gone on a tear, and that's bad for a bear like me.

It is, however, apparently good enough to justify an upgrade to "buy" from Stifel Nicolaus. In a report issued ahead of next month's earnings, Stifel announced Friday that it's upping Under Armour to "buy." So far, details on the upgrade have been few and far between.

We know that Goldman Sachs is bullish on the stock, and upped its price target last week on the theory that Under Armour will deliver consistent growth. We also know that Under Armour hinted at new guidance at its recent Investor Day. That led Citigroup to reiterate a "buy" recommendation and predict that its fellow analysts would raise their earnings predictions in tandem. Wonder of wonders, that's just what Stifel did.

Last but not least, we know that a key Under Armour competitor, lululemon athletica (Nasdaq: LULU), blew away estimates when it reported earnings Friday morning. This could be bad news for Under Armour if it means that its rival stole market share. Stifel and Co., in contrast, would probably argue that Lulu's results indicate surprising strength in the apparel industry.

Let's go to the tape
Speaking of "surprising strength," I should probably mention that when it comes to picking winners in this industry, there are few analysts better than Stifel Nicolaus. Over the four years we've been tracking its performance, Stifel has put together an unparalleled record of success in Textiles, Apparel, and Luxury Goods:

Company

Stifel Rating

CAPS Rating
(out of 5)

Stifel's Picks Beating S&P by

Deckers Outdoor Outperform *** 28 points
Coach Outperform **** 24 points
Crocs Outperform * 11 points

Stifel's also done just fine with Nike (NYSE: NKE), and the only stock it's currently underperforming on at all is VF -- by less than a single percentage point. Overall, this analyst's record of 71% accuracy in the industry is simply beyond reproach. Yet I still can't place any faith in Under Armour.

Head fake
It goes against my every instinct to contradict an analyst of Stifel's caliber. I'm well aware that I'm probably going to be proven wrong on this, as Under Armour shares continue to run away from the market. But I just can't help myself.

I admit that the company's 36% revenue growth rate last quarter impressed me. The 69% rise in quarterly profits was superb news. But look at the other numbers here: Year over year, both Under Armour's accounts receivable and its inventories outran sales growth, up 48% and 68%, respectively. With its cash tied up in merchants' stores and unsold inventory, its free cash flow dried up. In fact, Under Armour burned more than $57 million in cash over the past year, even as it reported record "profits" of $73 million.

Foolish takeaway
Will Under Armour fix its business, reverse this trend of negative cash production, and fulfill the promise that investors like Goldman, Citi, and now Stifel see in it? Perhaps. Bankers Barclays and UBS tell us the company and Nike are planning to hike prices, adding that Dick's Sporting Goods (NYSE: DKS) and Foot Locker (NYSE: FL) are very hot for Under Armour's heat-shedding wares. That alone could help boost Under Armour's profits, both in GAAP and in reality.

I hope that happens. Under Armour is a key recommendation of two separate Fool newsletters, Motley Fool Hidden Gems and Motley Fool Rule Breakers. Even if I'm short the stock myself, I don't want to cheer against the home team. As a native "Baltimoron," I'm doubly in favor of Under Armour proving me wrong.

But invest in it? No way, Jose. Not until the numbers tell me to. For now, they don't.

Will Under Armour prove the bankers right, and Rich wrong? Add it to your Fool Watchlist and find out.

The Motley Fool owns shares of Coach, Under Armour, and Lululemon Athletica. Motley Fool newsletter services have recommended buying shares of Nike, Coach, Under Armour, Lululemon Athletica, and Deckers Outdoor.

Fool contributor Rich Smith is short Under Armour by way of put options. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 448 out of more than 170,000 members. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.