Under Armour Inc - Ordinary Shares - Class C

NYSE:UA  
20.62
-0.73 (-3.42%)
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The Powerful Bullish Narrative for Under Armour





##Symbol## UA

The bullish thesis for UA is simple: It's growing faster than peers. It's executing better than peers. It has a vision clearer than its peers and it has a stock price that has risen higher than its peers by huge amounts over the last two-years. Period.

Fundamentals

Under Armour has stepped boldly into the sports apparel and sports celebrity endorsement segment going head to with industry giant Nike. UA CEO Kevin Plank has named a goal of building a $1 billion brand (from a $100 million basketball brand) around Golden State Warriors star (and NBA MVP) Stephen Curry with a focus on the Curry One (and Two) signature basketball shoe. With the Warriors and Stephen Curry winning the NBA championship, Plank's bet is looking pretty sweet.

UA has also dipped into Lululemon Athletica's business of "Wunder Unders." You can read our full write up on LULU here: How Lululemon Disrupted Everything But Now Faces Trouble. UA has found that high margins (i.e. premium prices) with a solid brand name can do wonders (no pun intended) for it as well. Hat tip to LULU for inventing the market and hat tip to both Nike and UA for imitating to compete.

UA's revenue (TTM) has risen to all-time new highs for 45 consecutive quarters. Further, operating margins, net income (TTM), levered free cash flow (TTM) and capital expenditures (TTM) are all rising. This is a sold company, with strong growth.

Technicals   |   Support: 81.19   |   Resistance: 85.39   

Golden Cross Alert:
The 50-day MA is now above the 200-day MA.
Swing Golden Cross Alert: The short-term 10 day MA is now above the 50 day MA.

UA has a four bull (high rated) technical rating because the stock is trading above its 10-, 50-and 200- day moving averages and even though the stock is down on the day, the 10-day MA is above the 50-day MA (also called a "swing golden cross").

Here are the consensus estimates for next quarter. Note that last quarter's actual result is included at the far right.
EARNINGS ESTIMATES
Earnings Date EPS Revenue (Mean) Revenue (Median) Last Quarter (Actual)
2015-07-23 $0.05 $762.2 M $758.8 M $804.9 M Provided by ZACKS


Let's look at the core elements that drive the company's fundamental rating.


Fundamentals Rating Summary



METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Revenue (TTM US$ Millions) 3,248 2,502 1,922

Operating Margin (QTR) 1.044 1.04 1.03 RISING

Net Income (TTM US$ Millions) 206 168 122 RISING

Levered Free Cash Flow (TTM US$ Millions) 40 -65 144 RISING

Capital Expenditures (TTM US$ Millions) 169 109 60





Stock Returns and Chart

UA is up +3.2% over the last three months and up +24.6% over the last six months. The stock price is up +44.5% over the last year. The technicals look strong, and any kind of breakout above $86 would not only be a new high, but could signal a huge breakout.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).
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Now let's examine the visualizations of the critical financial measures.



METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Revenue (TTM US$ Millions) 3,2482,5021,922


Revenue (TTM) has increased for at least five consecutive quarters (in this case 45 consecutive quarters) which triggers a "trend." In the time series chart below, we can see the consecutive quarter growth.

We note that phenomenal growth of nearly 30% year-over-year. Any number over 20% has an added impact on the fundamental (star) rating.

What do all these numbers mean?
UA's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.
Finally, the five+ consecutive quarters of an upward trend in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Operating Revenues/Operating Expense 1.0441.041.03RISING


This ratio (which simply represents how much revenue is generated per one dollar of expense) must be at a minimum above 1.0 in order for a company to turn an operating profit. For the latest quarter UA showed a ratio of 1.044. But, we must note the cyclicality in these numbers. The 1.04 is actually slightly higher than the value one-year ago. The peak value, which is for quarters ending at year end (~Dec. 31) was just under 1.20. That number is actually slightly above Nike's 1.18. UA is for real.

Finally, note in the chart below we plot assets in the orange line. Assets are ripping to all-time highs and now stand above $2.5 billion. What do all these numbers mean?
A year ago Operating Revenues/Operating Expense was 1.04. In the last year we can see operating margins are increasing and are also currently greater than 1.0 (the critical level).

UA's fundamental rating was affected from the operating margin numbers in two ways:
1. The current value is above 1.0 (the firm generates an operating profit).
2. The one-year change was positive (raises the rating).

Let's look at Operating Revenues/Operating Expense in the chart below with the total assets in the orange line.


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Net Income (TTM US$ Millions) 206168122RISING

One of the great things about UA is that while we see growing revenue, we also see growing earnings. That little tid-bit is often times absent for growing technology companies, so it's nice to live in the world of apparel for a little while. We will note the cyclical nature of earnings, but if we focus on the trailing-twelve-month (TTM) numbers, we get a clearer picture of UA's earnings trend.

Net Income (after tax profit) over the trailing twelve months (TTM) for UA is up 23%. Note that revenue (TTM) rose by about the same number. That's a very good sign when earnings growth paces revenue growth. We do, however, note that the quarterly number for UA last earnings period was lower than it has been in two-years.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line.


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Normally we examine free cash flow at this point, but let's skip it other than to say it's rising year-over-year from a negative $65 million to now a positive $40 million. I want to focus next on Capital Expenditures.

METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Capital Expenditures (TTM US$ Millions) 16910960


Capital Expenditures (CapEx) (TTM US$ Millions) is trending higher meaning that for at least five consecutive quarters (in this case ten consecutive quarters), it's been rising. Several consecutive increases in capital expenditures may be a sign of solid investment in the future (if costs are under control). CapEx is up an astonishing 55% year-over-year and 182% from two-years ago (using TTM numbers). That could sound frighting, except during that same time period earnings and free cash flow are growing. Note the trend in the chart below.



In our final time series chart we plot Capital Expenditures (TTM US$ Millions) in the blue bars.


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Tale of the Tape


In our final visualization, we take a look at nine critical fundamental measures (many of which we have examined above), comparing UA to NKE and LULU. In many ways, this final visualization is the cap stone to the bullish argument for UA.


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To make this a little less overwhelming, we can examine it row-by-row.

Row 1: Across the top we can see that NKE is the giant in the industry with both revenue and earnings towering above the other two. No problem, we already new that, and it's a part of the bullish thesis for NKE as well.

Row 2: The second row shows us that UA has higher gross margins that both NKE and LULU. The gross margin "superiority" to LULU is very exciting and points to UA's growing strength, and as I point out in the LULU article, a nasty trend for that firm. Earnings margin % for UA is still lower than the other peers, but that's slightly wonky due to the weird quarter most recently reported by UA.

Row 3: This is the bullish thesis for UA. The company is growing revenue and earnings faster than NKE and LULU by large amounts and the end result is that final chart in the lower right hand corner (price to sales). Every dollar of revenue for UA is worth $5.35 in market cap for UA, compared to just $2.77 for NKE and $4.92 for LULU. In English, the stock market is pricing in greater growth for UA than its peers.

Summary
UA has strong fundamentals with growing revenue, operating margins, earnings, free cash flow and CapEx. The firm's growth rate is superior to its peers for both revenue and earnings and the stock market is placing a nice fat growth premium on the stock for that exact reason. The bullish thesis for UA is simple: It's growing faster than peers. It's executing better than peers. It has a vision clearer than its peers and it has a stock price that has risen higher than its peers by huge amounts over the last two-years. Period.