The market correction of 2016 has been destructive for many growth companies. Shares of growth stocks have taken a beating this year, however, Under Armour (UA, Financial) is an exception to this trend as shares have remained flat this year.
With Under Armour still expected to post double-digit annual growth in the coming years, I think the stock deserves a premium and can continue outperforming the market.
International sales growth
The company’s first $1 million top-line day in China came on Single's Day, the Chinese equivalent of Black Friday.
For the rest of the world, the company has marched up its game to turn out to be a global business. Throughout 2015, international sales surged 69% to almost half a billion dollars. Despite being known as a North American brand, the positive impact of international sales has been rising since 2013.
The company’s aim is to produce 18% of its top line from international sales by 2018. Under Armour is still not close to Nike (NKE, Financial), which generates 49% of its overall revenue from international sales, but the speed of international sales growth is remarkable.
Moving towards wearable tech sector
It is not necessary for any company to be rigorously a tech company to enter into the wearable equipments game, and Under Armour is one such example. The company introduced various wearable tech devices at the Consumer Electronics Show in 2016, including a heart rate monitor, a smart scale, smart shoes, a fitness band and an application to link them all together.
During the previous year, the company bought Endomondo, MapMyFitness, and MyFitnessPal, for a total of about $710 million. It is very risky for a fitness clothing manufacturer to shift towards the wearable technology sector, but these purchases show just how determined Under Armour is about the wearable tech market. The company’s latest Health Box is now available, and Under Armour’s smart shoes will likely be available in the market at the end of February.
The company does not hold a leading position in the wearables tech segment right now, but it is highly like that Under Armour’s wearable tech products and robust brand could convert the company into a serious player, which may be bad news for Fitbit (FIT, Financial) investors.
Conclusion
Despite Under Armour’s rich valuation, I think the stock can move higher due to the expansion in the international market and increasing presence in the wearables sector. Given Under Armour’s strong growth, I think the company will be able to grow into its current valuation soon.
