UA Stock: Is It Time to Dump Under Armour Inc?

Under Armour StockThe recent market swoon has clobbered stocks and no security has felt the pain more than Under Armour Inc (NYSE:UA) stock. Over the past few months, shares of the apparel maker have plunged nearly 25%.

Is it time to panic? Hardly. If you believe in buying wonderful businesses when their shares are on sale, then Baltimore-based Under Armour stock may be worth a look. Here’s why…

1. growth… Growth… GROWTH

In the sports apparel business, Nike Inc (NYSE:NKE) is the undisputed champion. Under Armour, though, isn’t running far behind.

Based on the latest financial report, the business continues to shoot the lights out. Total revenue grew 22% year-over-year to $865 million in the fourth quarter of 2015. The numbers were particularly impressive in certain segments: accessories sales grew 23%, direct-to-consumer revenue increased 36%, and international revenue adjusted for currency fluctuations jumped 85% year-over-year. (Source: “Under Armour Reports Fourth Quarter Net Revenues Growth Of 31% And Full Year Net Revenues Growth Of 28%,” Under Armour Investor Relations, January 28, 2016.)

This could just be the beginning. Management believes the company will be able to sustain annual sales growth of at least 20% over the next several years. Those plans may seem ambitious, but Under Armour has proven the skeptics wrong many times before.

2. Reasonable Price

Under Armour stock could not be described as cheap, even with the recent sell-off.

UA stock trades at 28 times the company’s forward earnings, a steep premium especially compared to peers Nike. Similarly, shares look expensive on other financial metrics, like price-to-sales and price-to-cash flow.

But UA stock only looks expensive because it’s growing so quickly. Once you account for its fast-growing profits, the stock starts to look reasonable. Assuming earnings grow at 20% per year (in-line with most analysts’ estimates), UA stock is trading at only a 1.8 ratio on a price-to-earnings growth basis. This is about in-line with peers.

3. The Smart Money Is Buying

The world’s smartest money managers are backing Under Armour.

Based on recent Securities and Exchange Commission filings, a number of respected hedge fund investors—including George Soros, Jim Simons, and D. E. Shaw—increased the size of their stake in the company last quarter. Money manager Donald Chiboucis has also accumulated a $132-million position. (Source: “Hedge Fund Holdings,” Insider Monkey, March 2, 2016.)

What could have all of these Wall Street bigwigs so excited? I’d say it could only mean one thing: they see a giant rally ahead.