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How high can Under Armour fly?

Tuesday - 8/7/2012, 1:39pm  ET

Shares of Under Armour hit a 52-week high yesterday. Let's look at how it got here and whether clear skies are ahead.

How it got here
If consumers are cutting back in the current environment, they certainly aren’t cutting back on athletic wear. Under Armour’s second-quarter revenue growth of 27% and solid profit of $0.06 per share, despite a seasonally weak quarter, has driven the stock to a new high and the momentum doesn’t appear to be slowing down. The company raised its full-year outlook to 22% to 24% growth in revenue and an increase in net income of 26% to 27%. 

Over the last five years Under Armour has done well, but it still hasn’t been the hottest athletic wear company around. lululemon athletica has taken over the yoga market with its swanky clothing, and its stock has run circles around Nike and Under Armour.

UA Chart

UA data by YCharts

As I said above, athletic wear is performing well despite the economic situation, and growth at Under Armour, Nike, and Adidas (OTC: ADDYY) has been strong year over year. In that pack, Under Armour has been able to separate itself with higher growth, while maintaining strong profits and return on assets, which is why the company’s forward P/E is so high.

Company

Quarterly Revenue Growth

Profit Margin

Return on Assets

Forward P/E

Under Armour26.8%6.2%11.8%33.9
Nike12.2%9.2%12.5%16.3
Adidas16.8%5.4%6.5%13.9
Lululemon53.0%17.9%29.5%27.3

Source: Yahoo! Finance.

The question now becomes whether or not Under Armour is worth the premium over Nike despite lower margins.

What's next?
In my mind, there doesn’t appear to be any slowing down for Under Armour. The company has quickly gone from a niche player in athletic wear to offering something for nearly every sport and every occasion. The current P/E ratio is a concern, but Under Armour is growing so fast that I think the company can live up to it.

CAPS investors are also bullish, with 2,698 players giving the stock an outperform rating versus 256 underperform calls. What do you think? Leave your thoughts in the comments section below.

Interested in reading more about Under Armour? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock.

This article was originally published as How High Can Under Armour Fly?on Fool.com

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