- The American sports clothing and accessories company is currently delivering excellent financial performance for its investors.
- Meanwhile, the market leader, Nike, continues to assert its dominance within the industry at the expense of its rivals.
- The high-price burden of Under Armour stock may prove to be a risk factor that could deter future investment.
Under Armour (NYSE:UA) is certainly delivering. The supplier of sportswear and casual apparel posted excellent financial performance in the fourth quarter of 2015 and continues to grow from strength to strength. The Baltimore-based company, which was founded in the year 1996, appears to be set for an incredible period of growth over the next decade. As a matter of fact, Morgan Stanley analysts predict that Under Armour is well on track to achieve an astounding figure of $20 billion in revenue by the year 2025.
In addition to this, their research suggests that by the year 2030, Under Armour is expected to become the third largest sportswear brand in the world and that it is even likely to surpass the German multinational corporation, Adidas (OTC:ADDYY). Under Armour does receive its fair share of hype, but this compelling evidence means that predictions couldn’t be any nearer from the truth.
Source: UK Business Insider
Approximately two years ago, very few people could foresee Under Armour’s potential for staggering future growth. Under Armour certainly answered its critics and proved the doubters wrong. Under Armour's spectacular rise is partly attributable to its aggressive investment strategy. This generally encompasses high profile endorsement deals and major sponsorship agreements with celebrity athletes as well as professional and college athletic teams. In addition, the company continues to support women through various marketing initiatives, such as the “I Will What I Want Campaign”.
Under Armour recently announced a 31% increase in net revenues to $1.17 billion, with full year net revenues also increasing by 28% to $3.96 billion. Earnings figures are also growing rapidly, with both operating and net income increasing by 21% in the fourth quarter of 2015. More so, diluted earnings per share stood at $0.48 compared with the $0.40 EPS in the prior year same period. What is even more impressive is the fact that its sales on a currency-neutral basis grew by 33% compared with the prior year’s period. This sort of growth is absolutely astounding, and to top it all, over the past 25 consecutive financial quarters, Under Armour has managed to grow sales figures at more than 20% annually.
Meanwhile, Nike (NYSE:NKE) continues to demonstrate its superiority over its rivals. Its revenues for the fourth quarter rose by 5% to $7.8 billion, which is an increase of 13% on a currency neutral basis. Additionally, fourth quarter net income rose by 24% to $865 million, whilst its diluted earnings per share increased by 26% to $0.98, which is indicative of strong revenue growth and gross margin expansion. With Nike performing so well, Under Armour is definitely still playing catch-up to the global sporting powerhouse. Despite this, Under Armour can be encouraged by the fast rate at which it is growing, which appears to be surpassing the growth of Nike in its early years.
Source: UK Business Insider
Everything appears to indicate that Under Armour will replicate its excellent performance over the coming years. However, the current Under Armour stock price appears to be a risk factor that could deter future investment due to the fact that they are priced for demanding expectations, which could suggest that the stock is just too expensive at present. Quite frankly, Under Armour is an amazing business to invest in for the long term. However, in my opinion, investors should remain wary and not go “all in” at the current price. I would suggest that investors purchase small starting positions whilst continually deepening their Under Armour portfolio over time, especially if the volatility of stock price provides an opportunity for future discounts.