Under Armour Is A Long-Term Buy

| About: Under Armour, (UAA)
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Under Armour grew first-quarter earnings by 30.4% year over year and upped full-year guidance for 2016 to $5 billion.

The company has a history posting 20-plus-percent quarterly revenue growth for 24 consecutive quarters.

Management has committed resources to key partnerships with athletes and colleges as well as purchasing Connected Fitness application to position itself for long-term sustainability.

When Under Armour, Inc. (NYSE:UA) reported Q1 2016 earnings in late April, the company announced a lot of positives for the company's future to help investors get comfortable with the current high valuation. On a high level, the positives included revenue of $1.05 billion, up 30.4% year over year, and EPS of $0.04, both of which beat expectations. Also, looking ahead, the company upped guidance for 2016 to $5 billion, and after reading the earnings release and listening to the earnings conference call, it's easy to see why the company is optimistic after the first quarter. From my most recent analysis on Under Armour, I stated that I believed the company was doing a lot of things right and has a very bright future, which is why I believe the stock is undervalued despite the high valuation. In this article, I will update that analysis.

While the company is relatively new, founded in 1996 and taken public in 2005, the company has a shown consistent growth by recording 24 consecutive quarters, or six straight years, of 20 plus percent revenue growth. This consistent growth has the company's management expecting to double revenue to $7.5 billion by 2018. Even with the company already posting significant growth from inception, Under Armour still has a sub-5% market share of the athletic industry as a whole. A large portion of this expected growth is anticipated to come internationally as the company has been able to produce 56% year-to-date growth in the first quarter of 2016 and it is expected to accelerate going forward due to strategic investments being made. Additionally, the overall health of the industry looks promising as well, with Nike (NYSE:NKE) reporting excellent results with its 3rd quarter of 2016 results on March 22, 2016. On a currency-neutral basis, Nike's revenues grew 14% year-over-year for the quarter. Nike's management believes the e-commerce and international businesses will continue to grow at an impressive clip.

Additionally, the company is growing its core business through strategic partnerships. Two new initiatives announced during the quarter were the 10-year deal announced with the University of California or its plan to open another Brand House in Madison, Wisconsin, to further penetrate the Big 10 college sports market. Both of these are examples of the company continuing to disrupt the sports apparel market once dominated by Nike. While Nike has been able to hold onto aging superstars in Tiger Woods and Lebron James, Under Armour has shown its relevancy in partnering with Stephen Curry, the NBA MVP in 2014-2015, Jordan Spieth, the 2014-2015 PGA Tour Player of the Year, Cam Newton, the NFL MVP in 2014-2015, and Bryce Harper, the MLB MVP in 2015. All of which are believed to be generational players in their respective sports and relationships with them should provide benefits for years to come. The Stephen Curry contract has already helped the company boost footwear sales in a once dominated Nike market. Sales of shoes were up 64 percent this quarter, with the Curry Two leading the company to sell $264 million during the quarter. The growth of footwear sales is expected to continue to accelerate given the innovative products in the pipeline. Footwear sales only made up 14 percent of last year's revenue; it is expected to increase to almost 25% by 2017.

On top of footwear, the company is placing a huge bet on an innovative venture, Connected Fitness, which was seen through major acquisitions of MyFitnessPal, MapMyFitness, and Endomondo. Under Armour is anticipating that the daily use of those smartphone applications will lead to sales of apparel, footwear, and other athletic gear. While the current revenues from Connected Fitness are low, management believes the applications are in the very early stage of implementation and revenues should hit $200 million in 2018. The implementation is expected to engage the consumer socially with the online platform, while also using the data compiled through the Connected Fitness to help the consumer toward their goals. Currently, the platform has over 60 million active monthly users and should be a driver of the company's future growth.

With the company's showing 24 consecutive quarters of 20 plus percent revenue growth, projected management estimate of hitting $7.5 billion in revenue by 2018, and growing its international business at a 56% pace, Under Armour has been doing all of the right things to position the company to compete with Nike and other competitors in the sports clothing and accessories market. Through strategic partnerships with cream of the crop athletes and institutions, the company should be able to exceed the $7.5 billion in revenue by 2018 as it continues to acquire more and more key partnerships. Additionally, Under Armour continues to innovate through strategic technology acquisitions, which helps create a community among the users of Under Armour products. All of these factors combined, I believe the Under Armour stock is positioning itself for the future and is a great long-term stock purchase.

Disclosure: I am/we are long UA.

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.