The Big Three? Under Armour is Now Solidly In

Written by GSCR Staff   
Friday, 10 June 2016 06:53

The U. S. Open, the PGA tour’s second major of the season, begins next week at historic Oakmont Country Club near Pittsburgh. We thought we would begin the coverage early because pertinent news surrounding the sports apparel world ties into today’s stock pan.

For those of you who do not follow golf closely, the ‘big three’ reference is made to the new young stars of the game, Rory McIlroy, Jason Day, and Jordan Spieth. The original big three was Jack Nicklaus, Gary Player, and Arnold Palmer. But we digress. Apparel and gear sponsorship is big business sports and golf is no exception. The big boy on the block, Nike (NYSE – NKE), has tied their fortunes to Rory in an effort to try and fill the Tiger void for $200 million. Adidas AG (OTC: ADDY) announced it was selling its golf divisions that include the TaylorMade, Ashworth and Adams brands last month. How it affects the Jason Day sponsorship is yet to be seen. Adidas is still a huge presence in soccer. Finally, Under Armour, Inc. (NYSE – UA - $38.66) tagged their man Jordan last summer. Today we will look at UA going forward.

Below is the one-year chart for Under Armour. At a quick glance, it can be easily observed that the stock has entered a buying zone with another trough according to the head and shoulders pattern, which occurred right after UA announced it would be negatively affected by the Sports Authority bankruptcy. On the simple fundamental side, the forward P/E is 50 versus the trailing metric of 73 on forecast 2016 revenue of $4.9 billion which represents nearly 25% growth.

UA 1-Year Chart

(Source: www.otcmarkets.com)

MM.06.09.16.UA-1yr

On closer examination, the margin performance for Under Armour is worth highlighting. The operating margin is 10%, four percentage points above the industry average, and the gross margin is 48% versus the industry average of 46%. The stock has had excellent performance related to EPS, meeting or exceeding the expectations four consecutive quarters.

Last month Under Armour pulled a major coup with the largest deal in intercollegiate sports history getting the UCLA Bruins for $280 million. This is a big deal since UCLA is in Nike University’s, i.e. Oregon, back yard. These kinds of deals and EPS performance should give the stock the pops to get it back on track. We like UA to climb back to the $50 level by the end of the year.

Have a great day!

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