Under Armour's New Growth Plans Should Reward Shareholders

| About: Under Armour, (UAA)
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Apparel maker Under Armour (NYSE:UA) has been a darling of the stock market since going public over eight years ago. The company has expanded from a small cap niche player to a full on Nike (NYSE:NKE) competitor. The company now has more ambitious goals for expansion and sales. These new goals should send shares higher in the short and long term.

At the annual Goldman Sach's Global Retailing Conference, Under Armour presented a bullish case for their stock. The company, which posted sales of $1.8 billion in fiscal 2012, is still in ultimate growth mode. Company CEO and founder Kevin Plank said, "We believe we are $10 billion brand that is doing $2 billion of business today."

Under Armour's new goal is $4 billion in sales by 2016. This would essentially double sales in under three years. With large gross margins and improving financials, Under Armour may be able to also come close to doubling earnings per share in the same time period.

International expansion should begin to be a focus topic on earnings call. The company is expanding in Chile and Brazil in 2013 and 2014. Under Armour is still a North American story, as 90% of its sales come from the region. This does create huge opportunities as Under Armour becomes a global brand.

New products are also a continued focus for Under Armour. The company rolled out its Armour39 performance measuring device recently. The ArmourBra has helped the company expand its women segment. New products like ColdGear Infrared and Speedform cleats have executives very excited going into the next fiscal year.

Under Armour continues to beat analysts' revenue and earnings targets and post incredible growing numbers. The second quarter marked the company's 13th consecutive quarter of 20% top line growth. In the second quarter, revenue increased 23% to $455 million. Net income increased an astonishing 163% to $18 million. Earnings per share of $0.16 beat analysts' target. Gross margin in the second quarter was 48.3%, well ahead of last year's 45.9%, and getting closer to the company's long term target of 50%.

Under Armour raised its full year guidance for revenue. The company now expects to post annual sales in a range of $2.23 to $2.25 billion. Analysts on Yahoo Finance see revenue hitting $2.26 billion, an increase of 23.1%. Under Armour usually comes in ahead of guidance and should be able to beat analysts once again.

Under Armour is also in a strong position to start acquiring smaller apparel companies. The company ended the second quarter with $224 million in cash. Long term debt dropped to $55 million, from last year's $74 million. I would not be surprised if Under Armour made a deal in the women's market or a retail deal to strengthen its brand.

The biggest worry against Under Armour is its huge price to earnings multiple. Shares trade at 55.6 and 43.8 times respective targets for fiscal 2013 and 2014 earnings. Rival Nike isn't much better trading at 22.5 and 19.7 times fiscal 2014 and 2015 targets. Under Armour has projected 20% growth, while Nike has 8% growth rates. In my eyes, Under Armour represents the better investment as its growth will eventually catch up. After all it takes less time to double sales from $2 billion to $4 billion than it does for Nike to double sales of $25 billion.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in UA over the next 72 hours. 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.