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Under Armour’s Valuation Hits All-Time Record

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Under Armour stock jumps on higher growth expectations

Valuations for Under Armour (UA) have been spiking lately. The stock reached an all-time high of $85.71 on April 16. The company’s valuation also touched a new record of 78.2x forward earnings on the same day.

Valuations are up by ~39% this year. As we saw in the previous part of this series, the company has made a number of strategic investments this year in athletes, new product launches, and technology.

In comparison, the consumer discretionary sector (XLY) and the S&P 500 Index (SPY) were valued at 19.9x and 17.9x forward earnings, respectively, on April 16.

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Growth factors

UA’s growth (IVW) (IWF) record since its inception in 1996 has been exemplary. Revenue has grown at a CAGR (compound annual growth rate) of 30.5% between 2010 and 2014, to $3.1 billion in 2014. The company has been able to grow revenue at 20%+ growth rates for 19 consecutive quarters.

In contrast, peers Nike (NKE), Lululemon Athletica (LULU), and Adidas (ADDYY) have exhibited more modest growth. NKE, LULU, and ADDYY grew sales at a CAGR of 10%, 26%, and 4.9%, respectively, over their respective five-year fiscal periods.

NKE and UA together make up 0.9% and ~4% of the portfolio holdings in the iShares S&P 500 Growth ETF (IVW) and the iShares U.S. Consumer Goods ETF (IYK), respectively.

Growth by geography

North America, which accounts for ~90.7% of UA’s revenue, grew at a CAGR of 29.4% between 2010 and 2014. Growth rates have been higher for UA’s international operations due to their smaller size. International revenue from outside North America rose 108.2% year-over-year to $0.3 billion in 2014.

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Category growth

Apparel, which accounts for almost 75% of UA sales, has grown at a CAGR of 28% between 2010 and 2014. Apparel has demonstrated 21 straight quarters of 20%+ growth rates. Last year, apparel revenue grew 30% year-over-year to $2.3 billion. Apparel revenue growth was outpaced by the smaller and newer footwear category, which grew 44% in 2014 to $0.4 billion in sales.

Earnings history

UA has had a history of strong earnings growth, unlike a lot of growth companies. Diluted adjusted EPS (earnings per share) grew at a CAGR of 30.8% between 2010 and 2014. In the next part of this series, we’ll look at the company’s outlook for 1Q15 and full year 2015.

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