Under Armour Will Overcome

On Tuesday, Under Armour (NYSE: UA) fell 16%. It’s dropped almost 30% over the past month, Wednesday’s price of $18.25 getting close to the 52-week low of $16.05 it reached in November. And to add insult to (sports?) injury, original investors in the athletic wear company will note it’s well below what they paid in the 2005 IPO.

But while many analysts suggest this company may be a one trick pony – akin to Crocs (Nasdaq: CROX), they couldn’t be more wrong. The reason its share price was penalized was that analysts were expecting $1.09 instead of the .79 reported.

This is a classic case of overreaction from a negative earnings report.

The fact of the matter is that this brand has developed a premium niche within the sportswear market, and it’s expanding that brand recognition to other areas.

Yes, there are numerous knock-offs of their breathable fabrics. And several competitors for the highly coveted retail space they occupy. But you have to hand it to UA. It was able to outmaneuver entrenched companies like Adidas AG (ADDYY.PK) and Nike (NYSE: NKE). That wasn’t easy.

Under Armour’s integration into professional and college sports has put its product into the hands of millions of athletes. From younger athletes seeing their sports idols wearing UA, to the armchair quarterbacks who want to do the same, its specialty sportswear has mass appeal. That brand dominance will allow it to keep its spot for the long haul.

It’s no surprise, really, that it’s being affected by the current economic downturn – like most other companies. But a few missed analyst estimates does not make a company un-investable – or unprofitable.

Disclosure: None

Comments

[John316:]

It's a trust thing....UA has hung investors out to dry on more than one ocassion in the past year. In this environment, when investors are understanding, how do you wait till mid January to say Christmas was terrible and, oh by the way, profit was highly levered to those last $50M in sales....to the point of missing qtrly eps by 65% - Ponderous.

How you trust this management team going into another tough consumer year with big investments needed to get running shoes going is a gamble.

Jan 15 06:44 AM

[MBA Student:]

I agree that UA has done a great job building their brand. Many teens MUST have UA and not the knockoffs. However, UA has had significant issues controlling their inventory and this has hurt their profit and cash flow growth. I still believe they will be around for the long haul (if not bought out by a competitor) but there will definitely by some growing pains along the way....

Jan 15 08:22 AM

[Joe Friday:]

NIKE trades at a p/e of 12.5 (trailing). UA has traded at a premium because it was a growth stock, but that growth has taken a pause in this market enviroment. They are a great company and deserve a lot of credit for building a great brand. The question to be determined, though is what their realistic value is. If you give them a slight premium multiple to NKE (say 15), then with their current earnings at .79 and perhaps a buck next year, they are probably fairly valued at between 12-15 dollars.

Jan 15 10:34 AM

[drc32:]

I don't understand the brand dominance comment. Last time I checked, Nike was the preeminent brand in all sports. Just because UA sponsors more and more university teams every year doesn't mean their sales will increase. Of course young people have an affinity for UA products but people with actual spending power still buy Nike.

Jan 15 12:55 PM

[jockstrap:]

I'm in the sporting goods industry and delivery of product has hurt UA in the past. That is why they have increased inventory on the shelf. If they can't deliver product, it doesn't matter how great the marketing is.

Jan 15 03:14 PM

[builder:]

to drc32 :

People with spending power that I know are all buying UA clothes. I am 47 well off and love the clothing line. I hate wearing nike. the clothes are so uncomfortable. they should stick to shoes. UA absolutely dominates the clothing arena in sports wear. From kids to mid lifers UA is a great product. I do however worry about the shoe line as I have had problems with the width of the shoes and had to return them. I don't eben have a wide foot? I hope they fix that problem as I would love to wear the shoes as well. I wish them luck and am waiting to buy the stock.

Jan 15 11:40 PM