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Under Armour Will Keep Growing Faster Than Nike

- By Sangara Narayanan

Under Armour (UA) took a huge hit after disappointing investors during the fourth quarter last year. 2016 was the worst year in the stock's history as UA lost more than half of its value in the last twelve months. Under Armour's valuation was way over the top for a really long time thanks to the company's stellar growth record, which saw quarterly revenues growing in excess of 20% for 26 consecutive quarters before moving sharply down to 11% during the fourth quarter.

What dented investor sentiment even more was Under Armour's outlook for 2017: the company expects net revenues to grow 11-12% to reach nearly $5.4 billion, a far cry from the above 20% growth the company enjoyed for more than six years. The sudden contraction in growth rate was not a one-time occurrence, and that news was more than enough to send the stock on a downward spiral.

UA is now trading near its 52-week low, with a price to sales ratio of 1.74, which is way less than the 2.74 at which Nike, its main competitor, is growing. At this price point, UA is looking extremely attractive if you are planning to invest in the segment.

To be clear, Under Armour's sales are not declining. The company still expects 2017 revenues to grow at 11%, which is much higher than the growth numbers Nike has been reporting over the past several quarters.

The main reason for UA's revenue growth slowdown was the contraction of growth numbers in the United States, which brings in more than 80% of the company's revenues. Nike's rate of growth in the United States has also slowed down, and with Adidas breathing down their necks, all three companies are set for a period of intense competition and comparatively slower growth in the country.

Under Armour has expanded to many international locations, but is still far away from having a penetration close to that of Nike, which derives nearly half of its revenues from international markets. Under Armour will be aiming to replicate a similar US to international revenue balance.


With several more countries to be added to its list, Under Armour should be able to steadily increase its international revenue numbers. During the fourth quarter, UA registered 55% growth in international revenues, and 63.2% for full-fiscal 2016.

International revenue growth will help UA sustain its targeted double-digit growth rate, while helping to mask any weakness that it experiences in the United States. The fact that the company was able to challenge Nike in a key developed market like the United States means that UA should ideally be able to do the same in overseas markets as well.

UA will be able to grow faster than Nike, and at a price to sales ratio of 1.74, which is far less than Nike's, UA is a better investment at this price point.

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

This article first appeared on GuruFocus.