I have been bullish on Under Armour (UA, Financial) for quite some time. Under Armour is a great company and although the stock’s valuation may be a little too steep for conservative investors, its growth story is still intact, and the stock can continue moving higher.
Under Armour launched its first shopping app
Under Armour is the only company after Nike (NKE, Financial) that has managed to grow at a rapid rate in the segment. 2015 was a profitable year for Under Armour, but the company is facing some short-term problems this year. However, these problems do not hamper the long-term growing potential of the company.
Under Armour recently introduced its first mobile shopping application named UA Shop which will be directly assimilated into its Under Armour Connected Fitness platform. This application is designed so as to gather information from a user’s digital workout record, and other data to make personalized shopping recommendations. UA Shop is compatible with Apple Pay as well.
The company detailed that this app will have access to the fitness and health information of over 170 million users around the globe. That figure is approximately six times greater as compared to the registered users of Fitbit (FIT, Financial) at the end of the previous year. Worldwide sports market is a huge market, and Under Armour’s decision of launching this innovative app will definitely increase mobile sales.
A problem
Under Armour is consistently reporting strong results, but the company’s inventory growth is surging at a more rapid rate than its top line. In the most recent quarter, the company’s inventory growth was 44% whereas its top line came in at 30%, which shows a considerable gap of 14%.
This accounts for the third successive quarter in which inventory increased faster than the top line. This is a problem for retailers because additional inventory is basically followed by huge discounting to make space for newer products.
However, Under Armour is taking various steps to enhance its service levels. The company recently publicized that it is working with SAP for the coming three years to offer an integrated creativity resource planning solution across its entire business lines. If the company does not manage to decrease its inventory growth, then it will result in lower operating margins. However, that has already been accounted for in the current share price.
Conclusion
Under Armour’s growth is still going strong and although a few short-term concerns are still there, the stock is ripe for buying. The company’s foray into the sports and fitness market should drive long-term sales, which is why I am bullish on the stock.
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