Surprised By Strength in Under Armour

I am a bit surprised at the strength in Under Armour (UA) yesterday morning off a nice earnings report but mixed guidance. Generally a high-valued stock would sell off on this sort of news but thus far it has held up - the stock is right at the 50 day moving average of $60 in fact. It looks like the stock was down 7% in premarket but then bounced to actually be up for the day. Honestly, if the stock started faltering here, I'd consider it a great short for the near term.

• Athletic apparel and footwear company Under Armour Inc. said Tuesday that its third-quarter earnings rose 25 percent on strength in the apparel business.
• Under Armour earned $20 million, or 40 cents per share, compared with $16 million, or 32 cents per share, in the same quarter last year. Under Armour said its revenue rose to $186.9 million from $127.7 million.
• Analysts polled by Thomson Financial expected earnings of 34 cents per shares on $171 million in revenue.
• Under Armour said its men's apparel sales rose to $113 million from $79.2 million in the same quarter last year, while its women's apparel sales increased to $39.5 million from $26.5 million. Youth apparel sales increased by about $5.6 million to $16.6 million.
• Under Armour's third quarter results soundly beat Wall Street expectations, and it raised its guidance for full-year revenue to above analyst projections. Citi Investment Research analyst Kate McShane noted, however, that the increased guidance adds in the strong third-quarter results, "but maintains the outlook for the fourth quarter."
• Moreover, Under Armour said inventory more than doubled from the same quarter last year, attributing the build up to "planned investment in core inventory to position itself for anticipated consumer demand." But McShane said the increase was "concerning" given that sales in the third quarter were up only 46 percent from last year "and management is guiding sales in the fourth quarter to be up around 30 percent."
• The company added that it intends to increase its marketing spending to 12 percent to 13 percent of revenue for the full year in 2008, compared with the 10 percent to 12 percent of sales it has spent in the past.

I like Under Armour (UA) for the long run; it is sort of like Apple (AAPL) or better yet it is sort of like Nike (NKE) in the 80s. It has cache, people will pay extra for its product and its a huge hit with the most important demographic, kids and teenagers. However it trades at 60x this year's earnings and 45x next year's.

While I think a growth rate of 30-35% is very do-able, I am not sure paying 2x earnings is what I want to be doing in a slowing economy. Even if I think Under Armour will, in general, be shielded from the flailing consumer (much like consumer gadgets will remain hot, so will Under Armour's), the stock performance from per market to now is very curious. If the stock clears $60 and starts to break out on volume, I will consider it has moved to a more safe technical position, but for now it appears vulnerable. I'd be more interested by the 200 day moving average which is currently in the $53s. (which I guess I could of got premarket yesterday AM if I had been paying attention)

Disclosure: No position in Under Armour.