Under Armour Stock Analysis: Under Armour’s Growth Story Is Not Over Yet

namanNaman Shukla is an Analyst at I Know First. He writes and invests in the stock market. Ranked in the top 8 percentile in TipRanks.com. Featured on SeekingAlpha.com, GuruFocus.com, Valuewalk.com among others.

Under Armour Stock Analysis

Summary

  • Strong growth should continue.
  • International exposure will drive sales higher as the company has a lot of room to grow.
  • Focusing on China is a smart step due to the market’s vast potential.
  • Under Armour needs to keep its inventory in check.
  • I Know First algorithm is bullish on Under Armour

Nike (NKE) has been a long leader in the athletic apparel industry and will probably stay at the top for years. However, if there is any company that can cause Nike discomfort at its throne, it is probably Under Armour (UA). Under Armour’s (UA) rise has been sensational over the last few years.

A great management, almost flawless execution, and stellar growth, it is evident that the company has all it takes to continue shooting higher. Although the stock’s valuation may be a bit too high for some investors, I am pretty confident that the stock will continue moving higher in the long-term.

Growing quickly

Under Armour has progressively performed throughout the last decade, as the company’s revenue in the most recent quarter was more than $1 billion, compared to just $87.7 million ten years before. Under Armour holds a robust position in the men’s apparel segment, but the company has also expanded its reach into women’s and footwear segments.

Under Armour Stock Analysis

At present stage, Nike is industry leader, followed by Under Armour at second position. However, Nike and Under Armour cannot be compared (yet), as Nike is much larger company than Under Armour.

Recently, Under Armour has faced several headwinds and the reason behind this is the weakness in the apparel market in North America, and the loss of The Sports Authority, a massive athletic retailer in the United States that is backing out from business.

Irrespective of the troubles, Under Armour’s sales have surged on an average of 20 percent every quarter during the past six years. Under Armour is still a trivial company compared to Adidas and Nike, but stockholders need not to worry about this, as it is not necessary for the company to snatch huge amount of market share from its giant rivals to carry on its rapid growth trend. That being said, I do expect Under Armour to pinch market shares from both the apparel giants in the domestic, as well as the international market.

International Growth

When it comes to international exposure, Nike dwarfs Under Armour as the former sells its products in about 190 countries. However, Under Armour is shifting its focus on international growth, as the company’s international sales surged 55.6 percent to around $150 million in the first quarter. International sales now account for approximately 14 percent of the company’s overall sales. The company is strategizing to escalate its revenue generated from international sales to 18 percent by 2018.

In the most recent quarter, revenue from China accounted for the major part of revenue generated from International market. The company is putting lot of efforts to make its presence robust in China, where revenue in previous quarter approximately tripled compared to that in year ago period. The main reason behind this is the success of the company’s Curry 2 signature line of basketball shoes.

Under Armour Stock Analysis

Under Armour’s expanding its wing over China is a great decision as the Chinese apparel market is expected to grow at a rapid pace and represents a huge opportunity.

A new shopping app

Under Armour recently introduced its innovative and first mobile shopping app named, UA Shop, which will be directly assimilated into the company’s Connected Fitness platform. UA Shop is designed to gather information from a consumer’s digital workout, buying history, as well as other data to make personalized shopping recommendations.

Moreover, the company also claimed that the app has the capability to access to the health and fitness information of over 170 million members around the globe. That number is almost 6 times compared to the 29 million registered users Fitbit had in FY15. The company also has various other popular applications; therefore, binding all users to a single health-tracking network will support the company to aggressively compete against its rivals.

A negative point

According to the recently reported quarter, Under Armour’s inventory growth came in at 44 percent, a lot more than top-line growth of 30 percent. Q1 was the third successive quarter in which inventory growth was greater than revenue. This can cause problems ahead, as the company will end up selling products on a huge discount to make place for newer products.

 But, the company formerly informed stockholders about the rising level of inventory. However, the company’s management is taking various steps to enhance service levels. Under Armour detailed that it is currently working with SAP over the upcoming three years to provide an integrated enterprise resource planning solution to enhance its supply chain. This will help the company to deliver correct order at the accurate time.

Conclusion

All in all, Under Armour’s long-term future looks very bright. The company has a lot of room to grow, and given the proficiency of its management, I am certain that it will make the most of every opportunity. The stock may be trading at an expensive valuation, but I think Under Armour deserves the premium, as in the long-term, the stock will be trading at a lot higher levels.

My bullish stance on UA is echoed by I Know First’s algorithmic forecasts. I Know First uses an advanced state of the art algorithm based on artificial intelligence and machine learning to foresee market performance for more than 3,000 markets including stock forecasts, world indices, commodities, interest rates, ETFs, and currencies.   The algorithm generates a forecast with a signal and a predictability indicator. The signal is the number at the center of the box. The predictability is the figure at the bottom of the box. At the top, a particular asset is identified. This format is standardized across all forecasts. The middle number indicates strength and direction, not a price target or percentage gain/loss. The bottom figure, the predictability, signifies a confidence level.

Under Armour Stock Analysis

Under Armour Stock Analysis

As you can see from the image below, the green 44.38, 115.01 and 565.53 shows that I Know First’s bullish signal for Baidu is very strong in the long-term, which resonates with my outlook as well.


Under Armour Stock Analysis