Under Armour: A Survivor In A Sluggish Economy

Oct.18.12 | About: Under Armour, (UA)

Under Armour (NYSE:UA) stock trades around $59 versus its 52-week range of $34.61-$60.90, and it is up 60% in the last year. The stock is trading with a P/E multiple of 49 times, and a forward P/E of 39 times. An important point to note is that as of September 28, 2012, the short interest in the stock remains a high 20%. One of the company's closest peers, Nike (NYSE:NKE), is trading at a P/E multiple of 18 times, and a forward P/E of 17 times. The stock is up about 10% in the last 1 year. An NFL sponsorship has been a significant support for Nike.

As of June 30, 2012, the major institutional holders of Under Armour stock are Waddell & Reed (7.5%), Bamco (5%), The Vanguard Group (4%), Franklin Resources (4%), and Neuberger Berman Group (3%).

A Quick Look At The Fundamentals:

Inventory levels at Under Armour outlets continue to decline, which tells us that inventory levels have been well managed at the stores. Inventory levels at the outlets were at their peak in August, but have currently declined to a low for 2012.

Under Armour has had several successful new shoe launches, which have been well received by customers. According to data from SportsOne data, Under Armour has captured a 7% market share in lightweight running shoes in 2012, versus 3% last year.

Liquidity on the balance sheet is not a concern. As of June 30, 2012, the company has $143 million in cash, and $42 million in short-term maturities of debt. In addition, the company has $300 million in a bank revolver, which can be used for working capital and general corporate purposes. As of June 30, 2012, no balances were outstanding under the revolving credit facility. A strong liquidity position is paramount to retailers in a weak economic environment.

Operating margins and EBITDA margins have an improved around 50bps year-to-year, and show more upside potential going forward.

Under Armour reports Q3 2012 earnings before market open on October 25, 2012.

We conclude by saying that the company has shown improvement in both top line and bottom line growth. Despite sluggish consumer spending and over-arching economic uncertainty, Under Armour has been a survivor..

Written by Kapitall's Sabina Bhatia.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Sabina Bhatia, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.