This Could Be Huge for UA Stock
People always like to cheer for the challenger, rather than the incumbent. Investors tend to do the same. This might explain why Under Armour Inc (NYSE:UA) stock managed to enjoy a huge rally in the past several years.
But wait, the company might be onto something even bigger. After giving Nike Inc (NYSE:NKE) a serious run for its money in the sportswear market, Under Armour is entering a new playground, and might change the future landscape of another multibillion-dollar industry.
Let me explain.
First, let’s admit that UA stock has always carried a high price-to-earnings multiple. I remember analysts saying that the company’s P/E was unsustainable back in 2011. Yet Under Armour’s stock price still managed to skyrocket till September of last year.
But how could this be possible? It’s not like the company has brought us a groundbreaking technology, right?
Sure, Under Armour might not have been the pioneer in innovation. But when it comes to growth, few companies can deliver better results than UA.
You see, if you are running a business that makes decent profits, some investors might be interested. However, if you are growing a business to take down the incumbent and become the new leader in the market, every investor will want to get onboard.
That’s precisely what Under Armour has done. The company did not even exist until 20 years ago. Back then, Nike, Adidas, and Reebok were the go-to choice for athletes.
Not anymore, though. Last January, The Wall Street Journal reported that Under Armour had overtaken Adidas to become the second-largest sportswear company in the U.S. by market share. (Source: “Under Armour Overtakes Adidas in U.S. Sportswear Market,” The Wall Street Journal, January 8, 2015.)
Sure, Under Armour is yet to take the crown from Nike. But the company has opened another battlefield. This time, it is aiming for the wearable tech market.
At this year’s Consumer Electronics Show (CES) in Las Vegas, Under Armour launched the “UA HealthBox,” a portfolio of connected fitness products.
The UA HealthBox retails for $400.00. Inside the box, you’ll find Under Armour’s three main products: the “UA Band,” “UA Scale,” and “UA Heart Rate.”
UA Band is basically a fitness tracker. It only takes 15 minutes to charge the band fully. And on a full charge, it can last up to five days.
UA Scale is a Bluetooth and WiFi-enabled scale that can measure both weight and body fat percentages.
UA Heart Rate is a sensor for detecting your heart rate when you’re working out. It’s designed to be barely detectable to make sure it doesn’t get in the way when exercising.
If you were to buy the three items individually, they’ll add up to $440.00 in total. Buying the UA HealthBox will save you $40.00.
Note that Under Armour is not done here. The company also unveiled its first smart shoe—the “UA SpeedForm Gemini 2 Record.” The smart shoe has a chip in the heel to track your pace, stride, and distance. It will be available on February 29 and retails for $150.00.
It’s clear that with the UA HealthBox, Under Armour is aiming at Fitbit Inc (NYSE:FIT), which has been dominating the fitness tracker industry. Launching the first smart shoe would help UA battle Nike, which has being offering its line of “Nike Plus” shoes with sensors.
Under Armour is not the pioneer in fitness trackers or smart shoes. But given its success story in the sportswear business, it might be able to change the competitive landscape in wearable tech as well.
In particular, gym goers have been loving Under Armour’s products. It might be a natural extension for UA fans to try some of the company’s newest offerings. Moreover, Under Armour has NBA MVP Stephen Curry speaking for it. Having the hottest basketball superstar is something that companies like Fitbit could only hope for.
The Bottom Line on UA Stock
Cracking this segment could be a big boost for Under Armour’s profits. According to Statista, the wearable device market hit $7.1 billion in 2015. This figure is projected to grow to $12.6 billion by 2018. (Source: “Wearable device market value from 2010 to 2018,” Statista, last accessed February 2, 2016.)
If the company can capture even a fraction of this market, it could be a big catalyst for UA stock.