Under Armour: GARP or Value Trap? (UA)

Under Armour, Inc. (NYSE: UA) posted its earnings this morning, and some might be breathing a sigh of relief that the stock is only down marginally.  The sporting apparel maker posted Q4-2007 EPS of $0.34 per share on a 29% rise in revenues to $174.8 million.  First Call had estimates pegged at $0.32 EPS on revenues of $173.5 million.

We had already been warned that the company was going to see a ramping up of its ad spending for the first half, and Wall Street understood that this meant a lower bottom line.  Under Armour’s guidance for fiscal 2008 is light as it sees revenues of $765 to $775 million.  First Call has estimates at $787.87.  The company is maintaining the stance that its diluted earnings per share will be in a range of $0.03 to $0.05 for the first half of 2008.

Shares had actually indicated slightly higher in pre-market trading, but now shares are down almost 3% at $36.50.  Its 52-week trading range is $25.39 to $73.40, although this only spent two or three days over the last two weeks down under $30.00.

What is interesting is how this has fallen so far from grace after a monumental 2006 rise.  If the company would just meet prior 2008 targets, it would now have a forward P/E ratio of just under 30.  The problem is that it isn’t growing as fast as before and it is no secret that all high growth companies either reach the end of the exponential growth or at least mature. 

If you are a growth investor, the GARP (growth at reasonable price) is there.  But the best growth is behind it and all the momentum is a mere memory.  Based on its multiples, its recent performance, its current earnings performance, and more, this also looks more like a value trap than it does a value stock.  The good news on the flip-side of the coin is that it at least looks like most of the worst has been seen.  We’d also note that if the company loses too much value it would make an attractive brand target for another apparel conglomerate that wants another solid core brand under its roof.

Jon C. Ogg
January 31, 2008