Is Now The Time To Get Into Under Armour Stock?

  • Under Armour stock price has fallen by one-third in the last three months, while Nike stock has gained.
  • Rumors that it would buy Lululemon, and a change in investment fashion have both contributed to this fall.
  • Buying previously in weak periods led to spectacular rewards.

Judged just by the behavior of his stock, Under Armour (NYSE:UA) founder Kevin Plank should probably be fired. But don't even think about it.

Just in the last three months, UA stock has fallen by 37%. Over the last six months the shares are down a full 19% while those of arch-rival Nike (NYSE:NKE) are up 6.7%. Analysts are pounding the table for Nike and telling investors to leave Under Armour stock strictly alone.

NKE stock chart

Source: Nike vs Under Armour stock price performance by

So is Under Armour in trouble? No. Investing fashions have changed. People prefer dividends and stock splits to growth. Under Armour is killing it on growth. During the three months ending in September, when it was shipping its Christmas season merchandise, the company brought in revenue of $1.2 billion, 28% ahead of the year-ago period, and 53% ahead of the previous quarter. Operating margins rose on the higher revenue, and net income came in at $100 million, up from $15 million the previous quarter.

Under Armour’s balance sheet has weakened in dealing with this growth, with total debt now at $904 million on assets of $3.04 billion. But only 62% of that debt is long-term debt. Most of it is the usual short-term capital taken out to fuel manufacturing.

Despite the changing financial fashions Under Armour is still growing faster than Nike, its margins remain comparable, and its strategy for gaining further remains in place. I suggested almost two years ago that Under Armour should buy Lulu (NASDAQ:LULU) and chatter about just that has been heating Lululemon stock for months, with Nike also presumably considering a bid. This has had the effect of raising the price of LULU while hitting that of Under Armour stock, as often happens during merger talks.

Lululemon could offer far more to Under Armour than to Nike, which already has a direct-to-consumer strategy through its Nike stores. Lululemon designs and manufactures its own clothes, tries hard to match supply and demand to avoid putting goods on sale, and delivers its yoga outfits through its own stores, maximizing profits. Lululemon also skews heavily female, UnderArmour heavily male, and a deal would balance that out.

Still, these are still just rumors. No deal has been done. The resulting fall in Under Armour stock still doesn’t make it a bargain – the Price/Earnings ratio is nearly 75 and even if it delivers $4 billion in sales this year you’re paying almost four times that for the stock. But this is a much better entry point than you have seen in some time, and the stock has split twice since 2012, tripling Nike’s gains between the start of 2011 and Under Armour’s peak in the middle of last year.

If you’re interested in this growth story, in other words, now may be the time to pounce on it.

Show Full Article
5 2
Is this article helpful ?    

Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

show more

Comments on this article and UA stock

Do share this awesome post