To: Potential Investor
From: Advisory Group 13
Date: June 18, 2010
Over the past three quarters, Under Armour stock trends reveal comparable growth to its largest competitors and the DJIA. At first glance, the company appears slightly more volatile with higher risk. UA, however, is still in its major growth stage and investing in the company may yield a promising reward. Comparing the various ratios of liquidity, leverage, profitability, market value and ROE to market competitors and industry averages, Under Armour demonstrates poise to compete at the same level as market-leader Nike in the near future. (See ‘Comparisons’ table, below left)
In addition to purely financial indicators, a recent UA annual report reveals distinctive strategic and marketing competitive advantages. These include: 1) a diversified marketing strategy targeting both serious athletes and common users of athletic wear, 2) campaigns that emulate those successful to Nike (focus on overall lifestyle or attitude rather than product line features), and 3) a demonstrated commitment to ensuring that average consumers associate the Under Armour brand with serious competition. Case in point: UA outfitted both an Olympic team and Boston College athletes in the past year.
In terms of strategy, Under Armour aggressively pursues copyrights on all campaigns and lines. UA derives its revenue through merchandising and licensing, allowing them to operate without heavy inventory costs. Under Armour does face several notable risks. UA does not control their suppliers, nor do they produce or own the rights to their fabrics. Additionally, UA is largely dependent on two large retailers as customers, Dick’s Sporting Goods and The Sports Authority. If either of these entities experience economic troubles, or fail to pay promptly (as UA sells to them on credit), they may damage Under Armour. A recent annual report, however, indicates that UA management is both well aware of, and proactively managing, these risks.
Under Armour is clearly outperforming market and industry averages through pro-growth management and marketing strategies that create competitive advantages and mitigate risks. With a high P/E ratio indicative of future growth expectations, supported by the strength of all other ratio comparisons, purchase of Under Armour stock at this time is highly recommended.