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Is it Time to Buy Under Armour Yet?

- By Sangara Narayanan

Under Armour (UA)(UAA), the hypergrowth story of this decade, was shocked last year as sales growth came down to 12% during the fourth quarter after staying around the 20% level for many years.

The fast-growing sports apparel and footwear maker saw one-third of its valuation vanish over the past 12 months. Under Armour is now trading at around the $18 mark, which is nearly 61% below the all-time high of $46.2 the company hit in May 2016.

Now that Under Armour has lost so much ground, is the stock price a screaming buy?

Under Armour and Nike (NKE), two of the world's leading sports apparel and footwear makers, are still dependent on the U.S. for the bulk of their revenues, and that market has been a little tight for both these companies.

During the fourth quarter of 2016, Under Armour made $1.3 billion in revenues, of which $1.07 billion came from the U.S. U.S. revenue for the quarter grew 5.9% compared to the prior period and was the sole reason for the strong double-digit growth being dragged down to 11.7% for the quarter.

In any other segment, a near-6% growth rate would be good, but the sports apparel and footwear segment is being weighed down by its own past performance. Nike, for example, was planning to hit $50 billion in revenue by 2020 and targeted near-double-digit growth between 2016 and 2020. That target looked feasible at the time it was set, but it looks like Nike will have to wait a few more years past 2020 to hit it. It's clear that Nike and Under Armour were both taken by surprise in the U.S. market and were forced to adjust their growth plans for the future.

The Global Sports Apparel Market is expected to generate revenues of $184.6 billion by 2020, growing at a CAGR of 4.3% during the forecast period, 2015 to 2020, according to new research published by Allied Market Research. Growing health awareness, increasing disposable income and a surge in female participation in sports are the major factors driving the growth of the sports apparels market.

Meanwhile, the Global Athletic Footwear Market is expected to reach $114.8 billion by 2022, growing at a CAGR of 2.1% during the forecast period 2016 to 2022. Athletic footwear refers to those shoes that are designed for sports and other outdoor activities. The global consumption volume indicates a trend of these being used as casual and fashion footwear by people of all age groups. The market offers a variety of footwear with options in color, design and price to cater to the needs and purchasing abilities of individual customers.

The global market for sports apparel and footwear is huge but highly fragmented with a large number of regional players in the mix. Nike's international revenues for the most recent quarter accounted for nearly 55% of its overall revenues.

Under Armour needs many more years to get to that level but, considering the way it was able to challenge Nike in a highly developed and mature market such as the U.S., Under Armour does have the credentials to keep its international revenues on the upswing through the next decade.

The slowdown in the U.S. may take more time to recover. Until that happens, both Nike and Under Armour stocks will remain under pressure, and may even keep edging lower depending on which way their quarterly earnings go.

Under Armour, despite losing one-third of its value, is still trading at 39 times earnings. Its short-term prospects may not be that bright, but as a long-term story it does look like an extremely appealing investment, provided you are ready to keep buying over a long period instead of buying it all in one go.

Disclosure: I have no positions in the stocks mentioned above, and no intention to initiate a position in the next 72 hours.

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This article first appeared on GuruFocus.