Under Armour (UA), wow! You’d be hard-pressed to find many $22 billion market cap stocks that have not only made back their August losses, but have also just made new 52 week and all time highs. UA closed up nearly 5% yesterday after the company gave long term revenue guidance for the first time. They expect to more than double from this year’s (expected) $3.89 billion in sales to $7.5 billion in 2018. UA’s average revenue growth over the last 5 years has been about 30%, and the stock is up nearly 1600% from its 2010 lows, and up more than 3000% from its all time lows in 2009:
With that performance one would think that UA engineers and designers were readying a cure for cancer. And with the torrid gains has come a very healthy valuation with the stock trading 95x expected 2015 earnings growth of 14% (down nearly 50% from fiscal 2014), and 5.75x expected 2015 sales growth of 26% (down from 2014’s 32% growth).
For comparison sake, Nike’s (NKE) market cap is about 4x that of UA, have about 9x the expected sales, that are only growing mid single digits, but trades 27x expected fiscal 2016 earnings that should grow 13% Obviously a much larger and mature company that still has impressive growth, but also a premium valuation.
So if we were playing would you rather, NKE or UA, its a fairly tough call. Both stocks are priced for perfection in this environment. For those that would chose UA, I suspect the focus will be on the potential for greater international growth. UA currently has less than 10% of its sales from outside the U.S., which is one reason they are betting the farm on NBA superstars like Steph Curry (resigned yesterday). International expansion could be the key to UA growing into a sort of NKE valuation in the years to come. While the strength of the dollar will be a headwind for NKE, as they get more than 50% of their sales from outside North America, incremental sales for UA will be less of an issue despite the potential of lower profitability in other regions.
The extreme stock market weakness in August revealed some technical support levels in many stocks. For instance UA’s August 21st close, the Friday before the flash crash on the Monday, was $90. the exact level the stock broke out from to new all time highs in late July after a beat and raise quarter (blue line). While the stock’s panic low on Monday morning August 24th was $80 (green line) now looks like very healthy long term support:
So you get the point, there is no overhead resistance, but the battle lines are drawn below, and the levels are well defined. Expectations are now sky high, and the 20% decline in a week in late August reveals what seem like fairly obvious levels to scale into a position for those that feel they missed the boat. I am not a fan of buying stocks like UA on runaway breakouts, but we will follow up today with a post of how to use heightened options prices to put some scale-in limit buy orders.