UA

I too have profited well the past few years by holding UA. Yes, it is always over priced and the P/E ratio is always too high. However, check out the 5 year stock price growth of UA and compare it with your other stocks. You will find few steady growing equals.

Let me share why I continue to hold UA…and even add at times during dips:

Our 21 year old son is an excellent golfer on scholarship in college. One of his buddies is Jordan Spieth. Both are from Texas. Jordan spent one year at UT before turning pro and led the golf team to a national championship…he was all of 18. He is now 20, on the PGA tour, and ranked #5 in the world. You will soon see him representing his country in the prestigious Ryder Cup. He is a budding future “Tiger” and will win some majors very soon. Remember what Tiger did for Nike’s image?
Jordan has a long term contract with UA and every time you see a major golf tournament, you will see Jordan on the leader board with all his UA logos on everything…hat, shirt, pants, belt buckle, shoes, and golf bag. And he is a class act.

Notre Dame just recently signed a long term contract with UA to be an official UA college representative of UA.

Our son loves everything UA makes from underwear to outer wear. It is just a cut above everything else. His buddies are the same. I see a lot of young people and old farts like myself wearing an increasing amount of UA for daily wear…and have for the past 10 years. Women seem to love their footwear. It is more expensive, but even here in the oil patch, Bubba likes UA. I expect UA to be as large or larger than Nike in 10 years. Did anyone notice all the UA apparel worn at the Winter Olympics? In this years Master’s golf tournament the highest finishing amateur was a young man from Britain…who was also plastered with UA logos.

UA just released their second quarter earning and as usual hit it out of the park. In fact, UA just experienced their 20th consecutive quarter beating earnings estimates. Their international growth is just now beginning to take off, experiencing an 80% increase And yet they are a tiny young company compared to Nike. But their explosive growth reminds me of Apple in their beginning years.

The UA website is first class and their follow up after placing an order reminds me of Apple’s service. Superior product combined with superior service equals explosive growth in any industry. I recommend every potential UA investor to order a couple of UA items and see if you appreciate the unique packaging and high quality of the product.

I hope some of you will take a serious look at UA. The macro picture looks awfully good to me. And you should read Karl Thiel’s excellent report on UA that came out in RB’s Friday.

Just some food for thought on a new one for us to consider.

Jim

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I echo Jim’s sentiments on UA. I have held UA for a much shorter time frame than him, only about nine months. I wish I had been a savvy enough investor to look at the company when I first saw the “Protect this house” commercials years ago. I loved those commercials.

In the time I have owned a part of the company, it has performed VERY well both in stock price and fundamentals. They are the highest conviction stock that I own and have consistently surpassed my expectations. They believe in customer service and community involvement.

This is not a cheap stock for sure, based on P/E. But as we have discussed on many threads on this board, P/E may not be the best way to value a company with incredible growth. But perform your own evaluations and reach your own conclusions.

The recent earnings report was very good. Revenue was up significantly across all segments, although earnings were only slightly so due to investment in the company infrastructure that should pay off as the company continues to grow. International sales are exploding, but are still a small percentage of total revenues, 6%. There is a long ramp ahead in that area.

Next week they will introduce a new ad campaign focused towards women. They feel this is another area where they can grow significantly. I am really looking forward to this as I have feel that UA is one company that always hits their target with advertising.

I am seeing more and more UA gear being worn around my small neck of the woods. Way to small of a sample to be of any value. But I do note that I see more UA gear on younger people and children then I do on more, ahem, mature people like myself. I am hoping that UA is building a lifetime connection with theae younger generations. My generation was, and probably still is, in the Nike camp. But if the lifetime connection holds, I see UA and Nike getting much closer to equals. Yes, that is a forward looking statement and you should treat it as such.

Without a doubt, Nike is still BMOC. Nike sales are 10x that of UA. There is risk should earnings disappoint, this stock will get hammered. That being said, I am confident in management and their vision.

So anyway, check it out, see if it is a fit for your portfolio.

Bill
Long UA

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I hope some of you will take a serious look at UA. The macro picture looks awfully good to me. And you should read Karl Thiel’s excellent report on UA that came out in RB’s Friday.

Just some food for thought on a new one for us to consider.

Hi Drillerjim,

I am a proud owner of UA (5th largest position) and would like to buy more since I agree with your premise. How high a percent of your portfolio is UA and what criteria do you use to buy more? With a good size correction in the offing, I simply do not want to buy at an outrageous valuation and given my large position, I can wait for rational pricing.
Thanks,
Mykie

Hey, all you UA fans, explain to me. There was so much enthusiasm for UA that I thought I’d go ahead and research it. I see that their reported earnings the last two quarters combined are 14 cents, and they are selling for $70! They have trailing 12 month earnings of 77 cents, and they are selling for $70! They have a trailing PE of 90! This isn’t a high tech software company. What’s going on? I must be missing something!

For instance, if I want to buy a clothing related company, why not buy SKX? Their earnings for the last two quarters were $1.29 compared to UA’s 14 cents. That $1.29 was up from 35 cents the year before, by the way. Their trailing earnings are $2.10 (up from 65 cents four quarters ago). They are growing much faster than UA. Their price is $52 and their trailing PE is 25!!!

Please explain why UA is where I should put my money.

Saul

For FAQ’s and Knowledgebase
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Mykie,

UA has grown to be my number 1 position along with CMG. Each are around 7% of my portfolio. My next 8 top positions are:
BOFI
UBNT
AIOCF
NFLX
AMBA
SYNA
Z
PCLN

I agree with you that SYNA may be worth adding to at today’s price.

UA may be a tad over priced with the big run up last week due to the earnings report. However, the market always gives us a chance to add small amounts. The pattern with UA is it will drift a little lower each quarter until the earnings report come out. Then a big run up as people are “surprised” once again. Twenty times in a row of “surprise” earnings! Maybe it was the 80% increase in international sales. I buy a little more when this stock is ignored for no apparent reason.

Jim

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Saul,

I am having trouble converting UA EPS to adj EPS. The company seems to report GAAP EPS. In your analysis you came up with a P/E of 70. But wouldn’t you want to convert it? How would you do that if they don’t report adj EPS?

Chris

Chris,

I would probably add back 65% of stock-based compensation (which they report in their press release under consolidated statements of cash flow).

Saul

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Saul,

You make excellent points regarding the numbers comparing UA with SKX. No question SKX is the better value play when comparing PE ratios.

When I pulled up the price appreciation of SKX for the past 3 years and compared it UA, it was as if a tracing line had been drawn over the 2 graphed lines. Both followed exactly the same growth lines. At 5 years, UA was up almost 3 times SKX.

I am going to give you the reasons the #1 buyers of apparel love UA. And who does 90% of the buying around the world? Women. So just for fun, here is the consumer (my wife, Pam) of our household talking:

“Hi Saul,
I do all the buying for us because Jim, like most men, hates to shop. We have 5 sons ranging in age from 21 to 40. All of them LOVE UA products. For Christmas, our 36 year old son in Dallas wanted UA tee shirts! He had bought one, for the ridiculous price of $25 and wanted a couple more. Now why would a tee shirt be worth $25? At first I was skeptical. I do all the washing, drying, folding and putting away of our clothing. After 25 washes, the UA tee shirts still look brand new. No wrinkles. No loose threads and no annoying scratching tags. UA tags are incorporated directly into the fabric! Little or no drying time. They are ready to wear! You can pack tee shirts/boxer shorts in a suitcase and they take up no room or weight. The silky feel wicks away heat and moisture like no other fabric I’ve ever worn. They do not bind, ride up, or wrinkle and feel fabulous like your own skin. I know nothing of P/E ratios. But the W/D ratio is unmatched…right women? Oh, that is the Washer/Dryer time ratio…and ease of folding and putting in a drawer. The same applies to the beautiful golf shirts and pants. And they still look brand new! Listening to our kids has been profitable for our portfolio. And Jim and I both love wearing UA products. The product has few competitors. UA is like Apple phones compared to Androids. Once you’ve tried it, you won’t compromise for an inferior product.”

Jim and Pam

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If you go here http://investor.underarmour.com/income.cfm and click Financials, Financial History, they have this row:

Diluted Normalized Net Inc/Shr
(Net Income From Continuing Operations,
Ex. Special Income / Charge)

I know nothing of P/E ratios.

As good as a product might be, value should always be considered. Is there ANY price of UA (the stock) that is considered too expensive?

Someone recently mentioned that they could see UA becoming the next Nike. Ok, let’s assume that UA will become the next Nike. Nike’s sales are about 10x that of UA. Let’s assume that UA continues on a growth rate that it’s been on for the past few years. That’s around sales growth of 28%. So at that rate it will reach Nike’s size in about 10 years. But that also means that UA should then have a stock price multiple that’s similar to Nike’s today. Nike reports GAAP earnings so for simplicity let’s just use P/S. Nike had sales of $27.8B and 905M shares outstanding which is $30.7 in sales per share. UA should have 131M shares if it continues to dilute at 2% per year. That would be UA a share price of $212 in 10 years. At today’s price of around $70. That would be a 202% gain over a 10 year period. The equates to about an 11.6% annualized return. Personally, I’d like to find higher yielding investments.

Chris

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Apparently there are flaws in my calculations so please ignor my last post.

Jim and Pam, Thanks for that incredible description of the benefits of UA products. I’m convinced I should try some of their products. They really do sound terrific, and I’m serious, but trying their products isn’t the same as being convinced that I should try their stock. I’ll have to think about that longer. After all, I love amazon products, and I have all Apple computers, phones and iPads, but sold out of my stock in both.

Best, and thanks so much for your participation Pam. That really added something for me in helping me understand why people like UA products so much

Saul

When I pulled up the price appreciation of SKX for the past 3 years and compared it UA, it was as if a tracing line had been drawn over the 2 graphed lines. Both followed exactly the same growth lines. At 5 years, UA was up almost 3 times SKX.

Jim, that just means that SKX just caught on 3 years ago, while UA has been going for 5 years. Doesn’t mean anything about the future.

Saul

Under Armor is a growing mega-brand for all sports-related clothing and Sketchers is an funky alternative shoe brand that is price competitive. I don’t own UA. But if Sketchers could create a stronger branding strategy, I’d be interested in buying shares. -DJ

Exactly right, Saul. Past performance is NO guarantee about future performance.

Thanks for your positive encouragement concerning Pam’s consumer input. I believe our wives are often forgotten assets we need to consult with. I know nothing of the marketplace…hate malls, and would rather chew ground glass than go shopping…especially when Pam is trying on clothing for me to evaluate. However, give me a credit card and Amazon and I’m fiscally dangerous to all concerned…a daily habit for me.

However, as consumers who hold the purse, our wives can add an investing dimension for those of us just evaluating products by earnings, cash flow and P/E ratios. Two years ago I asked Pam about KORS products. She went on for 5 minutes raving about their purses. I bought a few shares and have kept them for the past couple of years…we can now buy a ton of purses from the nice 36% run up in price and have plenty left over for a nice trip to Hawaii…or two. Her reasons have to do with fine stitching, quality leather, how it holds up, eye appeal, etc.

Saul, you are the best evaluator of stocks I’ve ever seen. You taught me so much in your lonely arguments on the WPRT board about how cash flow was absolutely killing future WPRT earnings…and time has proven you to be a prophet that was spot on correct. Numbers tell an awful lot about a company. However, often times a fresh perspective from the consumer point of view can add value to our stock purchases….as your own wife has done with her love of Sketchers shoes for you. My wife is going online today to see what all the excitement about Sketchers is all about and order herself a pair, or two, or three…

Thank God I don’t have to go shopping with her!

Jim

PS And I will purchase a few shares of SKX if she loves her new shoes as much as your wife does.

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It’s about the product and its genesis. Start with lacrosse fans & Terps. At some point, they also had the contract for at least some of the military for winter underwear. All the calculating and analysis won’t get you there.

I can’t explain why you should buy it. This is why I do - athletic and military kids and I like UA long johns best myself.

It had a unique product to begin with. There’s been a lot of that going around.

Someone recently mentioned that they could see UA becoming the next Nike. Ok, let’s assume that UA will become the next Nike. Nike’s sales are about 10x that of UA. Let’s assume that UA continues on a growth rate that it’s been on for the past few years. That’s around sales growth of 28%. So at that rate it will reach Nike’s size in about 10 years. But that also means that UA should then have a stock price multiple that’s similar to Nike’s today. Nike reports GAAP earnings so for simplicity let’s just use P/S. Nike had sales of $27.8B and 905M shares outstanding which is $30.7 in sales per share. UA should have 131M shares if it continues to dilute at 2% per year. That would be UA a share price of $212 in 10 years. At today’s price of around $70. That would be a 202% gain over a 10 year period. The equates to about an 11.6% annualized return. Personally, I’d like to find higher yielding investments.

There were errors in the above so let me try this again. Assuming UA will be Nike in 10 years, we might expect UA to have a similar market cap to what Nike has today. This of course assumes that Nike is not currently overvalued which it might well be considering a P/E of 24.9 after adding back share based compensation. Nike has been growing earnings at about 11% for the last couple of years. Nike’s market cap is $67.9B. UA’s market cap is $14.7B. Therefore, if UA became Nike in 10 years, assuming UA’s valuation would be the same as Nike’s is today, and diluting UA’s share count by 2% per year, you get a future market cap of $67.9 discounted 18% for dilution: $55.7B. This equals a future share price of $265.2 (a value equal to 3.78x today’s value of $70 and a gain of 278% from today’s price of $70). That is an annualized return of 14.2%. Now if you think Nike is overvalued and should have a P/E more like 17 then UA becoming Nike would be worth less. Nike’s 2014 earnings adjusted for share based compensation are $3.12 and a P/E of 17 would give it a current share price of $53.06 instead of $77.72. Nike’s Market cap would be $46.4B and then be discounted to $38B for UA’s 2% annual share dilution. In this scenario UA’s market cap would grow 159% for a future UA share price of $181 and an annualized return of 10.0%.

Please go to amazon and check out the reviews for sketchers shoes, people love them. I have several family members who swear by them. I have ordered a pair, strictly for market research, of course :wink:

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Nice analysis comparing UA with Nike, Chris.

Projecting 10 years out is always dicy at best. However, it is a fascinating look into the future if current trends hold.

Thanks for the work up.

Jim

Good work on the comparison to Nike, and I suspect that UA has nothing less than becoming as big as Nike as their goal.

The one comment I’d make is that it took Nike 35 years to arrive at their current position. UA is only about 15 years old. Assuming they get to Nike size in 10 years is pretty aggressive.

For UA to have the same level of sales as Nike does today in 10 years, they would need to grow sales at 26% annually for an entire decade. That seems like a pretty aggressive assumption.

If we say it takes them 15 years to arrive at $30 billion in sales, they still need to grow at 16% annually for the entire 15 years. Still extremely aggressive, but to me it sounds more realistic.

With your numbers above, a $70B market cap in 15 years implies 9% annual return. $38B market cap in 15 years implies ~7% annual return.

Decide for yourself if those returns are acceptable.

sf, currently wearing UA shirt, living in Europe where UA gear is tough to find but sought after, not holding stock but it is at the top of my short list for the next time the market sells off.