Will Under Armour’s Stock Outperform?

With shares of Under Armour (NYSE:UA) trading at around $50.87, is UA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

The short position on this stock is over 19 percent, which makes about as much sense as flushing money down the toilet. Even if you think there is a feasible reason to short this stock, there is no doubt that an abundance of other stocks much more warrant a short position. You don’t need to be Agatha Christie to see where this is heading, but let’s take a look at some important facts anyway.

Q4 revenue came in at $506 million, which was a 25 percent increase year-over-year. Q4 EPS was $0.47, which was a 51 percent increase year-over-year. FY2012 revenue was $1.85 billion compared to $1.47 billion in 2011. FY2012 EPS was $1.21 compared to $0.93 in 2011. As far as guidance goes, the FY2013 net revenue range is between $2.20 billion and $2.22 billion. Operating income will be $255 million to $257 million.

Investors are making great returns as markets roar higher. Join the party. Click here to discover our Feature Stock Pick now!

Q4 apparel net revenue was up 25 percent year-over-year. Q4 footwear net revenue was up 43 percent year-over-year. Q4 accessories revenue was up 16 percent year-over-year. Under Armour has also now shown revenue growth of at least 20 percent for 11 consecutive quarters.

Q4 Gross Margin was 50.3 percent versus 51.6 percent for the same quarter last year. This had to do with a less favorable sales mix and higher air freight costs. That said, it’s not a significant difference and shouldn’t weight on anyone’s investing decision.

Based on the numbers above, why would anyone want to short this stock? It’s understood that this information is only based on one report. Therefore, we will also look at the bigger picture.

Let’s take a look at some important numbers prior to forming an opinion on the stock… 

E = Equity to Debt Ratio Is Strong  

The debt-to-equity ratio and balance sheet for Under Armour are strong. If you’re looking for weakness here, you will have to keep looking. Under Armour just increased its cash position while decreasing its debt.

Debt-To-Equity

Cash

Long-Term Debt

UA

0.10

$342.00 Million

$62.00 Million

LULU

0.00

$439.42 Million

$0

NKE

0.03

$3.53 Billion

$228.00 Million

 

T = Technicals on the Stock Chart Are Mixed  

Under Armour has outperformed Nike Inc. (NYSE:NKE) for every timeframe listed below. Under Armour has also outperformed Lululemon Athletica Inc. (NASDAQ:LULU) over the past year, but this competition isn’t as direct… at least not yet. Nike is the only company of the three that offers yield, which is 1.50 percent.

1 Month

Year-To-Date

1 Year

3 Year

UA

4.82%

4.82%

27.78%

300.60%

LULU

-9.47%

-9.47%

9.31%

877.50%

NKE

4.80%

4.80%

5.31%

76.94%

 

At $50.87, Under Armour is trading above its 50-day SMA, and below its 100-day and 200-day SMA.  

50-Day SMA

49.56

100-Day SMA

52.27

200-Day SMA

51.73

 

E = Earnings and Revenue Have Been Steady         

Earnings have improved every year since 2008. Revenue has improved every year since 2007. Growth is consistent.  

2007

2008

2009

2010

2011

Revenue ($)in millions

606.56

725.24

856.41

1.06B

1.47B

Diluted EPS ($)

0.53

0.38

0.46

0.67

0.93

 

We already know what happened this quarter. Now let’s take a look at previous quarters.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in millions

465.52

403.13

384.39

369.47

575.20

Diluted EPS ($)

0.44

0.31

0.14

0.06

0.54

 

T = Trends Support the Industry

The consumer isn’t strong at the moment, especially when it comes to discretionary income, but Under Armour sells products that are greatly desired by millions. Many of these people have an interest in sports and fitness. Many others have an interest in superior comfort. Under Armour is expanding its reach into other areas as well, and the next targets are Women and Youths.

Conclusion

Some people feel that Under Armour is nothing more than a fad. Those people are greatly mistaken. Investing in Under Armour now is analogous to investing in Nike in 1990. These two companies might steal market share from one another through the years, but they will both continue to co-exist, and they will both remain healthy. The only real danger to Under Armour is a steep correction in the stock market.

Under Armour is an OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.