Is Under Armour Poised for Long-Term Success?

With shares of Under Armour (NYSE:UA) trading at around $55.92, is UA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock's Movement

Under Armour has been given an OUTPERFORM rating here since December. Have circumstances changed? The consumer has weakened, but Under Armour continues to achieve results. There's a reason for this.

To understand Under Armour, you must understand CEO Kevin Plank. This is a guy who had $40,000 in credit card debt when he started the company from his grandmother's basement. Since he has already been at the bottom, he knows what it feels like to be there, and he knows he could handle it if that situation were to present itself once again. Therefore, he has no fear. A man with no fear is a dangerous man, and Kevin Plank fits that description in a business sense.

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The shorts have been wrong on this stock for quite some time. What the shorts might not understand is that the more they bet against the company, the more motivation they provide for Mr. Plank. He likes to think of himself and his associates as eternal underdogs. This allows them to keep a chip on their shoulder, and they always feel as though they have something to prove. Of course, the ultimate goal is beating Nike Inc. (NYSE:NKE). This would be an extremely difficult, if not impossible, feat. Then again, those who have bet against Mr. Plank thus far have lost. Under Armour is taking a wise approach by aiming to take a little market share at a time, and it's certainly not backing down from Nike on the legal front. Don't get the wrong idea, though. Nike is still the clear favorite. Luckily, there is room for both companies.

Current positives for Under Armour include:

Consistent revenue improvements on an annual basis Consistent earnings improvements on an annual basis Highly innovative company Adding 10 Factory House stores this year Expanding margins (lower input costs) Analysts like the stock: 12 Buy, 14 Hold, 2 Sell Recently beat expectations Improvements in all segments Strong guidance International revenue increased 41 percent year-over-year Apparel revenue increased 22 percent year-over-year Footwear revenue increased 26.9 percent year-over-year Net revenue in Accessories increased 21.8 percent year-over-year Licensing revenue increased 18.8 percent year-over-year

Other than the threat of a slowdown in the global economy (a major threat), the only significant negative for Under Armour is an expected increase in capital expenditures.

Now let's take a look at some comparative numbers. The chart below compares fundamentals for Under Armour, Nike, and Lululemon Athletica (NASDAQ:LULU).  Under Armour has a market cap of $5.89 billion, Nike has a market cap of $55.90 billion, and Lululemon has a market cap of $10.80 billion.

	UA	NKE	LULU
Trailing   P/E	49.38	24.39	40.43
Forward   P/E	30.51	20.44	29.21
Profit   Margin	6.34%	9.22%	19.74%
ROE	16.07%	21.89%	36.35%
Operating   Cash Flow	$198.27 Million	$2.64 Billion	$280.11 Million
Dividend   Yield	N/A	1.40%	N/A
Short   Position	18.80%	0.90%	37.00%

 

Let's take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Strong         

The debt-to-equity ratio for Under Armour is stronger than the industry average of 0.50. Debt management has been good.

	Debt-To-Equity	Cash	Long-Term Debt
UA	0.07	$255.72 Million	$60.44 Million
NKE	0.03	$4.04 Billion	$321.00 Million
LULU	0.00	$590.18 Million	$0

 

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T = Technicals Are Strong  

Under Armour has been a strong performer over the past several years.

	1 Month	Year-To-Date	1 Year	3 Year
UA	9.22%	15.23%	13.10%	214.70%
NKE	6.15%	21.87%	14.96%	71.29%
LULU	20.36%	-1.56%	0.44%	278.10%

 

At $55.92, Under Armour is trading above all its averages.

50-Day   SMA	51.62
100-Day   SMA	50.32
200-Day   SMA	52.53

 

E = Earnings Have Been Strong                              

Revenue and earnings have both consistently improved on an annual basis.

	2008	2009	2010	2011	2012
Revenue   ($)in   billions	725.24M	856.41M	1.06	1.47	1.84
Diluted   EPS ($)	0.38	0.46	0.67	0.92	1.21

 

When we look at the previous quarter on a year-over-year basis, we see an increase in revenue and a decline in earnings.

	3/2012	6/2012	9/2012	12/2012	3/2013
Revenue   ($)in   millions	384.39	369.47	575.20	505.86	471.61
Diluted   EPS ($)	0.14	0.06	0.54	0.47	0.07

 

Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Increased taxes, underemployment, and the possibility of entitlement cuts are all potential negatives for the industry. However, Under Armour has been able to fight through headwinds (so far).

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Conclusion

Under Armour is without a doubt a long-term winner, but the stock market is too hot right now for any real conviction, especially since Under Armour is trading at 49 times earnings. Nike wouldn't be the best safe haven in a bear market, but it would be safer than Under Armour. That said, for investors who are capable of withstanding a hit and willing to purchase more on the way down if the stock gets hit, Under Armour is a long-term OUTPERFORM. This should be a safe long-term approach since Under Armour is highly likely to grow in the coming decades. It's certainly not going anywhere.