Is It Game On for Under Armour Stock?

It’s a great time to be a sports fan. March Madness is once again taking the college basketball world by storm, the Golden State Warriors are on the verge of breaking the NBA record for most wins in a season, and the Major League Baseball season is underway.
With all this going on, it seems like the perfect opportunity to evaluate Under Armour (NASDAQ: UA)  ̶  how the stock has performed, what the company is doing, and the outlook moving forward.

Under Armour Stock: Growth in Full Swing

It’s no secret that Under Armour is on a roll. The stock has rallied 48% in the past two years, compared with 9% returns for the S&P 500 Index. Looking back further, the stock has absolutely trounced the market. Under Armour has gained 381% in the past five years, while the S&P is up 55% in the same time period.
Indeed, Under Armour is one of the market’s premier growth stocks. This is because of the company’s rapid growth and excellent underlying fundamentals.
Under Armour’s revenue soared 31% in the fourth quarter, and 28% for the full year 2015. It has had a prolonged track record of strong growth. Last quarter was the 25th in a row in which Under Armour generated at least 20% revenue growth in apparel, its largest product category.
Under Armour is quickly becoming one of the world’s foremost athletic apparel companies, and is even starting to make a dent in industry leader Nike (NYSE: NKE), which reported disappointing earnings on March 22. Furthermore, Under Armour succeeded in a coup of sorts, by poaching Golden State Warriors phenom Stephen Curry from Nike.
Under Armour’s full-year diluted earnings rose 11% to $1.05 per share. Management expects momentum to accelerate this year—revenue and operating profit is expected to grow 25% and 23%, respectively, in 2016.
Analysts are bullish on the stock as well. Analysts currently expect Under Armour to grow earnings per share by 24% this year and 28% in 2017.
While there seem to be no shortage of accolades to describe Under Armour stock and its phenomenal returns, it needs to be said that those gains are in the past. Whether investors should buy the stock today is a different matter entirely—and the answer to that question depends on what the future holds.

Under Armour Stock Not for the Faint of Heart

Based on the company’s recent performance, management’s future forecast, and its strong brand within a growth industry, it’s very likely the company will continue to rack up above-average earnings growth.
But there is an old saying in the stock market: even a great company can amount to a poor investment, if too high a price is paid for its earnings growth. That’s where the bull case for Under Armour gets a little hard to swallow.
After such a tremendous rally in the past several years, Under Armour stock trades for 81 times trailing earnings. Even when accounting for its future growth prospects, Under Armour looks incredibly expensive. Shares trade for approximately 65 times forward EPS.
And Under Armour doesn’t pay a dividend, meaning there isn’t much downside protection here. If the company doesn’t meet future expectations, which are extremely high, the stock could drop like a rock.
Under Armour has had an incredible run, but at these prices, only the bravest investors should consider buying the stock.

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