Under Armour: Is Swimwear The New Basketball?

| About: Under Armour, (UA)

Summary

Basketball has been a huge source of growth for UA as of late with Steph Curry leading the charge.

Michael Phelps may be able to lead a similar surge in swimwear.

A move into this segment will help to fuel further growth and justify the current P/E ratio.

Much of the recent discussion around Under Armour (NYSE:UA) and its growth in new segments has focused around the emergence of Steph Curry as a global superstar and the impact he has had as an ambassador for the Company's basketball products (footwear in particular). His back-to-back MVP awards are impressive, and even if he does not make it to the NBA finals this year, he will likely be a focus of the U.S. men's basketball team in the Rio Olympics. He's not the only big-time ambassador will have at this summer's games, however. At the end of last year, Michael Phelps moved on from Speedo and joined the Under Armour family. Under Armour has already featured him in commercials in advance of the games.

Under Armour has carried a very high P/E ratio, which has fueled some questions of whether the stock is overvalued at present. The counter to this point is that the Company has maintained torrid growth and continues to blow past consensus expectations quarter after quarter. Swimwear provides another segment of the athletic apparel market to help fuel future expansion and growth of the brand. This past week, while I was getting ready for Memorial Day weekend, I did not see any Under Armour merchandise in the swimwear sections of the various department stores I visited. Further, swimwear is not mentioned once within the Company's most recent quarterly filing. I have to assume that the signing of Phelps indicates the Company's intention to make some waves (horrible pun intended) in this segment in the near future.

In a 2014 market analysis, the NPD Group estimated the U.S. swimwear market to be approximately $4 billion in total. In its 2014 analysis, Global Industry Analysts, Inc. estimated that the global market would reach $20 billion by the year 2020. If Under Armour can capture even a small percentage of this market, then it could be immensely helpful in fueling continued growth. Admittedly, Under Armour is not well-positioned to take much of the women's swimsuit portion of this market, as that sort of fashion is not their core business.

There is also some weakness in the swimwear market at this time. Companies such as Quicksilver and Billabong have struggled in recent years. The former declared bankruptcy, while the latter is trading at approximately 2% of the share price it reached in the middle of the previous decade. Under Armour is probably best-served emulating the model of Phelps's previous sponsor, Speedo, becoming trusted by serious swimmers, then moving into general swimwear. This track would likely help the Company avoid diluting its brand's reputation as high-quality gear that meets the needs of athletes at all skill levels.

Conclusion

Under Armour has been an incredible growth story to date. Questions around its future largely revolve around its ability to sustain its torrid growth. I believe that swimwear is the next basketball in that it is a market segment that the Company can enter to fuel continued growth and justify the Company's current high P/E ratio.

Disclosure: I am/we are long UA, UA.C.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.