Under Armour (UA, Financial)(UAA, Financial), the smallest of the big sports brands but one of the fastest-growing footwear and apparel makers, has registered 26 consecutive quarters of above 20% growth.
But the company quickly became a victim of expectations, seeing its stock price dip sharply over the past 12 months on a long string of bad news and a slowdown in its growth rates.
Compared to Nike (NKE, Financial), Under Armour is a much smaller company. Nike’s annual revenue has already surpassed $32 billion while Under Armour’s 2015 annual revenue came in at a much lower altitude with $3.96 billion.
Being a smaller company, Under Armour does have the ability to grow at a faster rate than a company that is more than eight times its size, but 26 quarters of growth is a consistency that speaks volumes about the company’s strength in the market.
As is the case with Nike, Under Armour makes the most of its money in the home market. In the third quarter of 2017 North American revenues stood at $1.225 billion, which is about 84% of its total revenue of $1.471 billion. And, like Nike, Under Armour’s overall performance is inextricably tied to North American sales or, more specifically, U.S. sales.
In the first nine months of the current fiscal Under Armour’s North American revenue grew 20.16% while the growth rate during the third quarter was 15.64%. That’s much lower than what was recorded during its two-year 20%-plus growth streak. Even as recently as 2015 that figure was in excess of 23% while in 2014 it was 27%.
There’s definitely cause for concern; although much of it was masked by the 66% growth that Under Armour enjoyed overseas for the first three quarters of the current fiscal, the sustainability of 20%-or-above growth levels seems nigh on impossible.
Naturally, as a high-growth company, Under Armour’s valuation has been on the higher side. Despite the slowdown in growth expectations coupled with a string of bad news that hit the company this year – like the bankruptcy of its largest seller, Sports Authority – Under Armour is still trading at 47 times earnings. That’s after losing 30% of its value over the last 12 months.
At that price multiple, there’s really not much room for maneuvering. Unless you’re ready to buy now, have the confidence that the tide will turn for Under Armour at home and are willing to stay the course for several years, this isn’t the best investment opportunity in the sports apparel and footwear segment.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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