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					       Security Analysis:
Under Armour Performance Apparel




                 By:
             Edel Farah
           Andrew Johnson
            Aime Kabongo
          Scott McDaniels
         Christian Munsch
           Gregory Simons
          Justin Thompson
Theme
       Under Armour was founded in 1996 by a former University of Maryland

football player, Kevin Plank. His designs revolve around keeping athletes dry as

they practice and perform. The material is intended to reduce the amount of

sweat. Today, Under Armour is one of the fastest growing athletic apparel

companies in the United States. This same material has become a necessity for

many athletes, while promoting many of their competitors to produce their own

versions.

       Since their introduction, Under Armour has widened their product line.

They now offer three different lines of shirts; HeatGear: used for more extreme

environments, ColdGear: used for insulation in colder environments, and

AllSeasonGear for the in between times. Under Armour is also available in three

different fits; compression, fitted, and loose fitting. Under Armour now offers

baseball, softball, lacrosse, soccer, and football cleats. Additionally, Under

Armour manufactures running and training shoes along with sandals to wear

before and after the game. In addition to shoes, Under Armour now

manufactures gloves for baseball, football, golf, and running. Under Armour is

also branching into other lines such as bags, socks, hats, and sunglasses.

       While some of Under Armour’s competitors are much larger, they continue

to grow, despite the current recession. We believe that Under Armour’s abilities

to grow and expand will lead to a much higher stock price in the future. This

report will explain our reasoning in our valuation of Under Armour.



                                                                                   2
Business Analysis

Company Profile

           In the beginning, designs were simple t-shirts made with high tech fabrics,

which were believed to enhance the performance of athletes if they were able to

stay comfortable and dry. Under Armour’s first big break was when Georgia

Tech University ordered this product after which interest continued to grow. They

supplied many division one teams and over two dozen National Football Teams

shortly after. Under Armour’s concentrated marketing theme was to sell to the

people who would appreciate the product the most. This, in turn, would cause it

to sell.

           Under Armour has nestled itself in the emerging market for hi-tech athletic

gear, thus becoming the lead brand name. Under Armour performance-

enhanced apparel, using patented synthetic fibers, gears itself to compressing

and wicked perspiration off the skin rather than absorbing it. This allows the

company to market its products as performance enhancing alternatives to

traditional cotton or mesh material. This technology allows the users to regulate

temperature, improve comfort, and wick away moisture. The different product

lines include performance apparel, footwear, and accessories for men, women,

and youth in the United States, Canada, and internationally.

Macroeconomic and Industrial Analysis

           Standard & Poor’s fundamental outlook for the apparel, accessories and

luxury goods is negative. The combination of high unemployment and

diminishing discretionary income impacts the industry’s demand to the fullest.
                                                                                     3
Accessories and differentiated fashion continue to outperform the market; it is

only doing so with a modest pace. The recognized diminishing demand in the

industry shows that high income shoppers have decreased their discretionary

spending due to their declining real estate and financial assets. Overall the

industry has seen a 4% decline in apparel sales in 2008, and the ongoing

projection for 2009 is a 6% to 8% decrease. A more recent figure shows that

apparel sales have decreased 7% in the first half of 2009, 4% being in the first

quarter. This can be contrasted with the 4% increase in both 2007 and 2008.

Different distribution channels vary across the board. In 2008, the off price

channel grew 5% growth which captured 9% of the market. The remaining

channels saw a year over year decline, which was lead by an 11% drop in the

direct channel. Department store sales didn’t fare any better showing a 7%

decrease, in tandem with store closures and heavy promoting. The evaluation

shows that not just one particular company, distribution channel, or retailer is

specifically being hit. It shows that the ongoing recession and lower discretionary

spending are affecting the whole industry.

       The ease of entry into the market will continue to grow plenty of

competitors. Deflationary pricing pressure will quantify acquisitions to continue

top line growth in the industry. Distribution channels are speculated to increase

the use of alternative channels, as well as seeing an increase in using a

company’s retail shops, mass merchandising, specialty shops, and the internet to

offset declining sales at traditional department stores. This includes lowering the

price point for mature lines and creating new mid-priced lines specifically for

discounters and mass merchandisers.

                                                                                    4
 Competitive Landscape

                               Under                Columbia               Industry
         Profitability        Armour     Adidas    Sportswear     Nike      Median
 Gross Profit Margin           48.21%     48.67%       42.61%     44.87%     43.00%
 Net Profit Margin              5.08%      5.95%         5.87%     7.75%      0.16%
 Return on Equity              12.30%     20.00%         7.90%    18.00%      0.40%
 Return on Assets               8.80%      7.20%         6.60%    11.60%      0.20%
 Return on Invested Capital    11.40%     20.00%         7.70%    16.60%      0.20%


                               Under                Columbia               Industry
          Valuation           Armour     Adidas    Sportswear     Nike      Median
 Price/Sales Ratio                1.76      0.69          1.06      1.59       0.90
 Price/Earnings Ratio            34.60     11.38         18.08     20.45     161.29
 Price/Cash Flow Ratio           13.72     14.99         13.14     17.54       9.86

                               Under                Columbia               Industry
         Operations           Armour     Adidas    Sportswear     Nike      Median
 Days of Sales Outstanding       44.24     52.10         46.32     54.05      43.00
 Inventory Turnover               2.20      3.10          2.60      4.40       3.10
 Asset Turnover                   1.70      1.20          1.10      1.50       1.20


                               Under                Columbia               Industry
     Per Share Data ($)       Armour     Adidas    Sportswear     Nike      Median
 Revenue per Share               $0.16     $0.51         $0.37     $0.39      $0.29
 Dividends per Share                $-        $-         $0.64     $0.98      $0.28
 Cash Flow per Share             $1.98     $2.33         $2.99     $3.54      $2.67
 Working Capital per Share       $5.27        $-        $20.62    $13.29      $7.62
 Long-Term Debt per Share        $0.26                   $0.60     $0.90      $5.40
 Book Value per Share            $6.96    $17.50        $27.45    $17.89     $12.00
 Total Assets per Share          $9.75                  $33.86    $27.27     $24.48



       The competitive landscape above shows the vital ratios of an industry

analysis, including profitability, valuation, operations, and per share data. The

gross profit margin shows that Under Armour is nearly 5% above the industry

median. Thus, they are generating a larger profit off each unit they sell compared

to majority of their competitors. Overall, Under Armour is significantly better than

the industry average in the areas of profitability, valuation, and operations. Under

Armour’s per share data is slightly below the industry average. However, this can


                                                                                       5
be attributed to the fact that Under Armour is a relatively new company and they

do not distribute dividends so they may plow back earnings to build the company.

Company Analysis/ Major Products

       Under Armour enabled their product’s brand identity by combining on-field

authenticity with professional, collegiate and Olympic athletes and professional

teams. This ensemble allows Under Armour to position themselves to market the

products toward an active lifestyle consumer, one who likes the comfort and

mobility their products provide. The apparel segment, the largest revenue stream

at 79.8%, is divided into three different categories, ColdGear, Heatgear, and

AllSeasonGear. HeatGear, the traditional Under Armour product, is designed for

hotter and humid temperatures, which allow the body to breathe, hence better

performance.

       ColdGear, similar to HeatGear allowing the wicking of moisture, is the

most expensive product line and most popular. ColdGear allows perspiration to

expire while retaining warmth. In the second quarter of 2007, revenue from this

product line was $124 million and in the fourth quarter of the same year

increased to $186 million.

       In 2006, Under Armour added an additional segment, footwear, which

targets performance cleats for baseball, football, and softball. They recently

signed a deal with the National Football League to be the official footwear

supplier. In 2008, the revenue stream for their footwear doubled that from the

previous year at $84.8 million. There is a concentrated effort on the footwear

front to be more appealing to a variety of users. In the summer of 2008, they

released a successful cross-trainer shoe selling a million pairs in the first year.

                                                                                      6
         They continued their efforts with releasing a series of running shoes during the

         Superbowl weekend of 2009. This launch included six models of running shoes,

         prices ranging from $85-$120, and further moves into the footwear market by

         providing footwear to basketball, tennis, and soccer. According to Keybanc

         Capital Markets analysis,

                   “Under Armour is taking the right steps in expanding into footwear as its

                   second growth phase, but positive financial results from this expansion

                   might be delayed until late 2010 or beyond.” In 2008, net revenues from

                   footwear were 11.7% beating accessories and license revenues, which

                   were both around 4%.”



         Financial Analysis

         Pro-forma Income Statement

                     2013      2012      2011      2010      2009      2008     2007     2006     2005      2004

Total Revenue        3,629.6   2,630.1   1,905.9   1,381.1   1,000.8    725.2    606.6    430.7    281.1       205.2
Projected Growth       38%       38%       38%       38%       38%       20%      41%      53%      37%            -
Cost of Goods
Sold                 1,851.1   1,341.4    972.0     704.3     510.4     370.3    301.5    215.1    145.2       109.7

Gross Profit         1,778.5   1,288.8    933.9     676.7     490.4     354.9    305.1    215.6    135.9        95.5
Gross Margin        49.00%     49.00%    49.00%    49.00%    49.00%    48.94%   50.30%   50.06%   48.35%   46.54%
Operating
Income                     -         -         -         -         -        -        -        -     35.9        25.4
Operating Margin           -         -         -         -         -        -        -        -   12.80%   12.40%
Net Income            248.0     179.4     129.7      93.7      67.7      38.2     52.6       39     14.4        14.3
Earnings per
Share                 $4.96     $3.59     $2.59     $1.87     $1.35     $0.76    $1.05    $0.78    $0.29       $0.29




                  Future Revenue was predicted assuming a yearly growth average of 38%
                   based on 2004 to 2008 figures.

                  Future Cost of Goods Sold was predicted assuming the average cost of
                   revenue in the past being about 51% of total revenue.


                                                                                                           7
      Future Gross Profit was predicted by subtracting predicted future
       Revenues from future Cost of Goods Sold.

      Future Operating Income is not included based on past years information.

      Future Net Income was predicted as 14% of Gross Profit for the year
       based on 2004 to 2008 figures.

      Earnings per Share were predicted based on 50 million shares
       outstanding.


   As we stated earlier, Under Armour is a relatively new company. However, by

performing a financial analysis of the company, we can determine that Under

Armour is obviously using a business model that works effectively.

       Due to this clever business model, Under Armour’s current ratio, the ratio

of current assets to current liabilities, is 2.98. This means the company has

substantial current assets to subsidize their current liabilities for the next 12

months. Essentially, they can pay their bills. Current assets at least twice current

liabilities (i.e. a current ratio of 2.0) are considered a healthy condition. Under

Armour also has a debt ratio of 4%. The debt ratio is total liabilities divided by

total assets. This indicates that Under Armour is not highly leveraged and in a

good financial position to grow.

       As represented in the above pro forma income statement, we project total

revenue to increase at a rate of 30% each year. This was determined by taking

the average of historical revenues from past years financial statements (2004-

2008). However, we feel comfortable assuming such a large growth percentage

because of Under Armour’s current financial condition and its position for

international growth. The pie chart below displays Under Armour’s 2008 Sales by

region.

                                                                                      8
                           2008 Sales by Region


                     4%   5%


                                                               US
                                                               Canada
                                                               Other Countries


                                    91%




        As you can see, Under Armour’s primary market is North America (United

States and Canada). We believe that Under Armour is poised for international

growth. Under Armour is represented in over 4,000 retail stores outside of the

United States already; therefore, we believe they have ample to gain from their

current placement.

        The next two charts display the common size analysis and trend analysis.

The common size analysis makes it simpler for a potential investor to compare

Under Armour with other companies within the same industry. The common size

analysis also shows that the gross profit has remained fairly constant. It also

shows that the net income has declined slightly. However, we believe the

decrease can be explained by the current economic crisis the United States went

through. The trend analysis illustrates the change in these same figures over

time.




                                                                                   9
Common Size                         % of                       % of                       % of                       % of                       % of
Analysis                2008        Sales         2007         Sales         2006         Sales         2005         Sales         2004         Sales
Revenue                 725.2       100%          606.6        100%          430.7        100%      281.1            100%      205.2            100%
Costs of Goods Sold     370.3        51%          301.5         50%          215.1         50%      145.2             52%      109.7             53%
Gross Profit            354.9        49%          305.0         50%          215.6         50%      135.9             48%          95.4          46%
SG&A Expense            278.0        38%          218.8         36%          158.3         37%      100.0             36%          70.1          34%
Depreciation &
Amortization             21.3         3%           14.6          2%            9.8          2%           6.5           2%           3.2           2%
Operating Income           --           --           --            --           --            --        35.9          13%          25.4          12%
Nonoperating
Income                   -6.2        -1%            2.8          0%            1.8          0%          -2.9          -1%          -1.3          -1%
Nonoperating
Expenses                 -0.9         0%             --            --           --            --          --             --          --               --
Income Before
Taxes                    69.9        10%           89.0         15%           59.1         14%          33.0          12%          24.1          12%
Income Taxes             31.7         4%           36.5          6%           20.1          5%          13.3           5%           7.8           4%
Net Income After
Taxes                    38.2         5%           52.6          9%           39.0          9%          19.7           7%          16.3           8%
                                      0%                         0%                         0%                         0%                         0%
Continuing
Operations               38.2         5%           52.6          9%           39.0          9%          14.4           5%          14.3           7%
Discontinued
Operations                 --           --           --            --           --            --          --             --          --               --
Total Operations         38.2         5%           52.6          9%           39.0          9%          14.4           5%          14.3           7%
Total Net Income         38.2         5%           52.6          9%           39.0          9%          14.4           5%          14.3           7%




     Trend                            %                           %                          %                          %
     Analysis             2008      Change          2007        Change         2006        Change         2005        Change         2004
     Revenue             725.2         20%         606.6          41%          430.7         53%         281.1           37%         205.2
     Costs of Goods
     Sold                370.3         23%         301.5          40%          215.1         48%         145.2           32%         109.7
     Gross Profit        354.9         16%         305.0          41%          215.6         59%         135.9           42%          95.4
     SG&A Expense        278.0         27%         218.8          38%          158.3         58%         100.0           43%          70.1
     Depreciation &
     Amortization         21.3         46%          14.6          49%            9.8         51%               6.5      103%              3.2
     Operating
     Income                    --            --           --            --           --            --      35.9          41%          25.4
     Nonoperating
     Income               -6.2       -321%            2.8         56%            1.8       -162%           -2.9         123%          -1.3
     Nonoperating
     Expenses             -0.9               --           --            --           --            --           --            --           --
     Income Before
     Taxes                69.9        -21%          89.0          51%           59.1         79%           33.0          37%          24.1
     Income Taxes         31.7        -13%          36.5          82%           20.1         51%           13.3          71%              7.8
     Net Income
     After Taxes          38.2        -27%          52.6          35%           39.0         98%           19.7          21%          16.3

     Continuing
     Operations           38.2        -27%          52.6          35%           39.0        171%           14.4              1%       14.3
     Discontinued
     Operations                --            --           --            --           --            --           --            --           --
     Total Operations     38.2        -27%          52.6          35%           39.0        171%           14.4              1%       14.3
     Total Net
     Income               38.2        -27%          52.6          35%           39.0        171%           14.4              1%       14.3




                                                                                                                                                 10
The graph below illustrates the decline in revenue.


                                Revenue Tre nd

    60%

    50%

    40%

    30%

    20%

    10%

     0%
       2005                   2006                  2007   2008




The graph below illustrates the decline in gross profit.


                              Gross Profit Tre nd

    70%

    60%

    50%

    40%

    30%

    20%

    10%

     0%
       2005                   2006                  2007   2008




                                                                  11
The graph below illustrates the decline in gross net income.


                             Net Income Tre nd

    200%


    150%


    100%


     50%


      0%


    -50%
        2005                  2006                 2007                 2008




Stock Valuation
      Under certain circumstances, a stock price can be determined using a

variety of methods; however those certain circumstances must be met to

calculate a price. This includes using a discounted growth model as long as a

company disperses earnings in the form of dividends. Finding a method for a

company, such as Under Armour, where dividends have not been dispersed

limits the ability to dynamically value a stock. Most at some point would be a

good guess and intuition understanding the economic environment, industry

analysis, market strategy, and product placement along with many other forces of

growth for a company.

      We have determined the value of Under Armour using the P/E Ratio

method and free cash flow method. The P/E ratio method is simply a valuation

ratio of a company’s current share price compared to its per-share earnings. It is

calculated by taking the market value on a per share basis divided by Earning
                                                                                 12
per share. When this is calculated with the research, we have concluded that the

P/E ratio as of 10/16/2009 is 39.41. This is based on the closing price of 10/16

and the earnings per share of .76. In general, this would be considered a higher

P/E ratio which suggest that investors are looking for the company to grow more

so than other companies. Competitively speaking, Under Armour leads with a

higher P/E ratio than the 3 main competitors, Nike, Columbia Sportswear, and

Adidas. Retracting from before, this suggests investors expect higher growth

from this company. The industry median calculates to 161.29, which may

suggest that investors in general expect high growth from this industry, which

would challenge investors to using the competitive landscape to create an overall

assumption of a company compared to its peers.

       High revenue growth for Under Armour could possibly be the case, but to

evaluate a stock based on assumptions alone increases the risk taken. We

calculated the revenue growth by performing a moving average using historical

data from 2004 thru 2008. In our opinion, the major driver that will move Under

Armour into an explosion of profit is branching into the international market.

Another positive note is the current up swing in the United State’s economy.

When these two factors are company and if the company is able to continue their

gross margin at 49%, this translates into to an increase in earning per share to

the following:




                                                                                   13
                                 Earnings per Share

          $6.00

          $5.00

          $4.00

          $3.00

          $2.00

          $1.00

           $-
                      2013       2012        2011      2010     2009




       Assuming that the P/E Ratio continues to stay at the current high growth

value of 39.41, the future price increases to $40.98 with 2009 estimates, followed

by $44.14 for 2010, $47.29 for 2011, $50.45 for 2012, and $54.38 for 2013. Until

Under Armour issues dividends, the actual growth of stock valuation requires an

investor to be in tune with the company’s particular market environments and

understanding its industry, economy, competitors, and overall capacity to create

growth.

       The free cash flow model shows that Under Armour stock is significantly

over valued. However, due to the reasons we stated previously, we believe this

valuation will begin to move upward until reaching the current market value. The

valuation is determined by taking the net cash flow and subtracting the capital

expenditures. This calculation also takes the growth rate and required rate of

return into account. After the cash flows are determined, they are then

discounted to arrive at the current intrinsic value.

                                                                                  14
Free cash flow available to equity holders (FCFE
in Millions)                                             $108.10
Estimated FCFE growth rate for next five years              18%
Estimated FCFE growth rate after five years                3.5%
Required rate of return                                   11.5%
# of shares (Millions)                                         50
                                                           0          1         2         3         4          5           6
                                               FCFE      $108.10    $111.88   $115.80   $119.85   $124.05    $128.39     $132.88
                                 Value of total equity                                                      $1,661.03


                         Present value of Cash Flow                   $2.19     $0.04     $0.00     $0.00      $0.00
                         Present value of total equity                                                       $963.84
                               Value of Equity today     $966.08
                                 # of shares (Billion)         50
Stock Price                                               $19.32




BULL VS. BEAR
          Our team has expressed our high interest and belief that Under Armor is a

model stock for any investor’s portfolio. Through our financial analysis and the

stock valuation method that our group chose to use, we have shown you why we

take a bull stance on this company. The following are the common bull and bear

believes that the financial industry currently expresses and maintains about

Under Armor:

BULLS

     1) The company is starting to penetrate several market segments of the

          sports apparel industry. Since their original conception the company has

          tailored the large majority of its products to the male football athlete. In

          the last two years the company has made successful attempts at

          penetrating many of the common American sporting segments with

          precise products. The company has just recently launched an aggressive

          advertising campaign directed at female athletes and it is proving to be

                                                                                                                    15
   successful in current and forecasted numbers. For investors this shows

   that the company has successfully expanded their product lines in the

   open market. This is comforting for investors because this indicates this

   company’s ability to innovate and branch out of its original niche. Under

   Armor currently holds a very small market share when compared to the

   other big sporting apparel manufacturers. This indicates that Under Armor

   has the potential to show a lot of growth in its respective industry if it can

   successfully penetrate these segments with its new product lines.

2) Another compelling bull argument for this stock is in respect to its

   International growth possibilities. Until now 95% of Under Armor’s

   revenue has been produced through U.S. sales. The company is

   launching product lines in English premier leagues and several other

   prominent European soccer and rugby outfits. This is extremely good

   news for shareholders and potential investors because this foreign market

   produces far greater revenues than the NFL does in the United States. If

   the company can prove to make products for these sporting segments as

   successfully as they have shown their ability to expand their product lines

   than the company will be sure to experience very aggressive growth

   models and investors should reap the rewards in the near future. Many

   investors believe that Under Armor will have a well diversified group of

   products in many of the world’s prominent sporting ventures within the

   next five years which is why current earnings and growth forecast are so

   high when compared to its competitors.




                                                                                    16
  3) This stock has a very cyclic tendency to trade on high volume and

     support during the American football season. For current investors this is

     good news because we have just entered into the beginning of this

     football season and Under Armor should prove to have a strong quarter

     and strong sales should continue into the winter season. Even for short

     term investors this could prove to be wise investment for a moderate

     profit. What is even better news for investors is that since this stock has

     gone public it has shown growth in sales sustainability during the football

     off-season each year. This means that sales are continuing to grow in the

     off season and a lot of this can be contributed to the company expanding

     its product lines to tap into other profitable sporting markets.

BEARS

  1) By a large consensus the number one bear critique for this stock is the

     competition that it is up against. Many believe that Under Armor has just

     begun to tread on the market share of the big retailers and we should

     soon see aggressive marketing campaigns by the likes of Nike, Adidas,

     and Reebok aimed directly at preventing Under Armor from continuing to

     gain market share. These companies have advertising budgets that can

     almost rival Under Armors sales revenue proving that they have the ability

     to outspend in both marketing and research and development. These

     bear critiques believe that the current industry growth predictions for the

     revenue of this company are far too strong and believe in much more

     conservative estimates. By taking this approach they believe that the




                                                                                   17
   stock is over-valued at its current trading P/E ratio in lute of a future

   contraction in earnings due to aggressive market tactics by the big boys.

2) Current critics of Under Armor also believe that during this weak economy

   the company will experience a deficit of sales during the upcoming

   shopping season in perspective to their current predictions. Despite the

   company’s ability to show a growth in sales for each quarter during this

   economic recession up to this point a small number of large investors

   have pulled out in fear of the company losing sales and share in the near

   future. Many believe that our economy will not experience healthy growth

   in consumer spending until midway through next year which would affect

   Under Armors current sales estimates making the stock over-valued. For

   many of those that still believe that the current market has not fully

   recovered from the downturn and is now grossly over-valued this would be

   the bear market position to take on this security.

3) One of the more intuitive bear approaches to Under Armor has to do with

   the belief that an industry wide fad is responsible for the newfound

   success of this company. Some critiques suggest that Under Armor is just

   a popular trend that the sporting apparel industry is experiencing right now

   and that the company doesn’t have the glue to stick around and

   successfully sustain or increase market share against the big industry

   competitors. What could also contribute to this stance is the fact that

   Under Armor is not sold at as many retail vendors as its big industry

   competitors as the likes of Nike have access to. This makes the

   company’s revenues more susceptible to spending cutbacks by consumer

                                                                               18
       in select outlets or regions than its competition is exposed to. Many

       critiques also believe that this notion will prove to be advantageous for

       Under Armors competitors when they decide to launch marketing

       campaigns against Under Armors products and brand identity.

The Moat
       We believe that Under Armour has ample opportunity ahead. Although

Under Armour has many other competitors, it is the only company that is unique

for their apparel that works with your body to control temperature and improve

performance. This is different from its top competitors (Nike, Columbia

Sportswear, and Adidas) because Under Armour’s gear is engineered to keep

athletes cool, dry, and light throughout the course of a game, practice, or

workout. Under Armour currently focuses on advertising and selling their

products to consumers for use in athletics and outdoor activities. Under Armour

maintain strict control over their brand image with an in-house marketing and

promotions department that designs and produces all of their advertising

campaigns. Under Armour seeks to drive consumer demand for their products by

building brand equity and awareness as a leading performance athletic brand.

       Under Armour operates in an extremely competitive market. The sheer

size and resources of some of Under Armour’s competitors is massive compared

to Under Armour’s. Because Under Armour currently owns no fabric or process

patents, their current and future competitors are able to assemble and sell

products with performance characteristics and fabrications similar to their

products. This allows easy barriers of entry by other industries. Many of their

competitors, such as Nike and Adidas, have strong worldwide brand recognition.

                                                                                   19
Their competitors also have significant competitive advantage, including longer

operating histories, larger sales forces, bigger advertising budgets, and greater

economies of scale. Under Armour has established a very strong brand name

allowing it to become one of the leaders in the pack of the current distribution of

sporting apparel. Under Armour has an enormous amount of room for growth

because the company is branching into new product lines and international

markets.

       Under Armour is subject to substantial pricing pressure caused by strong

competition, demands from retailers for lower costs and changes in buyer’s

demand. These issues may cause Under Armour to lower their prices to retailers

and consumers. In turn, this could cause Under Armour’s gross margin to decline

if they are unable to offset price reductions with comparable reductions in their

operating costs.

       Majority of Under Armour’s products are directed towards the male

population. If Under Armour continues to broaden the different product lines that

it sells that would allow for more growth within the company. Last year’s sales

report shows that Under Armour sold 53% of their products to men. In 2006,

Under Armour began their production of footwear and each year they have

expanded their footwear offerings. Under Armour began their production of

footwear with football cleats. The following year they introduced baseball,

lacrosse and softball cleats and slides. If Under Armour continues to increase

their offerings of footwear, there will be a substantial growth in their revenue.

       Currently, Under Armour is working on having apparel and footwear for

women. With the “Power of Pink” movement, promoting breast cancer

                                                                                    20
awareness, Under Armour has decided to create a pink line of clothing for

women. This will hopefully increase Under Armour’s sales within other product

lines. Also, 91 percent of Under Armour’s sales are located in the United States

of America. If Under Armour were to work on marketing globally, this could also

increase the potential for tremendous growth for the company. Under Armour has

partnered with an international shipping solution, FiftyOne, offering their

merchandise to 37 countries. Anyone can now shop Under Armour’s site in a

selected currency and see your complete order total, including shipping fees,

customs, tariffs and taxes when checking out. Once an order is submitted, the

total is guaranteed in the current exchange rate indexes.

       Under Armour has a narrow economic moat because it has easy barriers

of entry into their industry. Other competitors are able to create performance

characteristics and fabrications similar to their products. If Under Armour does

not make it difficult for their competitors to enter their industry, the moat will

remain narrow. If Under Armour were to place patents on their unique fabric, then

the moat would get wider; the wider the moat, the competitive advantage

becomes larger and more sustainable. By having a well-known brand name,

pricing power, and a large portion of market demand, a company creates a wide

moat. These characteristics act as barriers against other companies

contemplating entering the industry. Under Armour remains confident that

athletes will be purchasing products from them for many years and thus continue

to profit from this demand.

Risk

       Investing in stock represents a risk, some can be avoided and others can

                                                                                     21
not. Investors do not have any control, and they have to face them and adjust

their investment strategy.

       Purchasing Under Armour stock could be a wise investment. The positive

aspect of investing in Under Armour stocks is that the company is engaged in

production of practical items that people desire for their daily life. Therefore,

demand for these products should remain relatively constant, or may continue to

increase as the company extends it’s market.

       Another encouraging factor is that the primary consumers of Under

Armour’s products are youth to middle age adults, which represent a

considerable market for the future. Under Armour is the official outfitter for

football programs of more than 11 universities including The University of North

Texas and Texas Tech University. As illustrated in the following quote

       “On September 2, 2008, Under Armour signed a 5-year contract with the

       University of Maryland, College Park worth $17.5 million, making Under

       Armour the sole athletic outfitter for all 27 varsity sports at the school. A

       similar deal was finalized with Texas Tech University in November 2008

       involving outfitting of all 17 varsity athletic teams in a five year $11 million

       contract.” (http://en.wikipedia.org/wiki/Under_Armour).

       Under Armour also has contracted with some high schools such as

Southlake Caroll and Staley High School. These contracts represent stable

markets for the company’s present and future earnings.

       Standard and Poor’s also stated
                                                                                       22
       “The rapidly growing market niche of compression (tight-fitting) sports

      apparel represents about $1.245 billions at the manufacturer shipment

      level according to SGMA (Sporting Goods Manufacturers Association) and

      we estimate Under Armour is the market leader, with an estimate 60%

      share.”

This is another favorable reason for investing in Under Armour stock. This

statement reflects current and future earnings for the company.

      During the current economic recession that is affecting United State and

the rest of the World, Under Armour’s stock reached a new low trading around

$12.00 a share. (http://investor.undearmour.com/stockquote.cfm) At the end of

February 2009, Under Amour stock still reflects positive growth. Under Armour

stock reached the peak of its value on August 9, 2007, trading at $67.10. (Yahoo

Finance) Nike, the largest company in the industry, also saw their share values

fall during the economic troubles.

      In the long term, perhaps 20 years from now, no one is able to predict

Under Armour’s performance. Is Under Armour going to be able to maintain their

market share or possibly increase it? Will Under Armour disappear like so many

of the dotcom companies that were created after Internet boom of the 1990’s?

No amount of certitude can predict the future of Under Armour. Only time will tell.




                                                                                  23
Investing Strategy

Short Term

       For the investor seeking immediate short-term returns on their investment,

we would recommend an avoid strategy or a limit sell strategy. This is due to the

fact that Under Armour is showing signs of steady growth in revenue and gross

profit over the past few years. Under Armour has not paid out any dividends in

the last five years. This can be attributed to the fact that the company has only

been in operation for thirteen year’s. By many analysts, Under Armour would be

considered to still be in a stage of growth. Majority of companies experiencing

such high growth, reinvest all available residual cash in retained earnings, rather

than pay dividends to shareholders. The retained earnings is then used to further

grow the company by supplementing new assets and increasing their short term

and long term financing. Given Under Armour’s dividend strategy, expectations

of high immediate returns via dividends would be unlikely.

Long Term

       For the investor seeking long-term growth of equity and high earnings

potential, Under Armour would definitely be an attractive option. We would

recommend the purchase of Under Armour stock or to continue holding current

stock. There are many indicators (Price/ Earnings Ratio, Return on Equity and

Return on Asset Ratios) that should be compared with other sporting apparel

industry leaders such as Nike, Adidas, and Columbia Sportswear. These ratios

suggest there is a very strong potential for continued growth within Under

Armour. In reviewing previous income statements, the fact that gross profit

percentages have relatively stayed the same, while total revenue has almost
                                                                                    24
tripled in the past three years, are strong indicators of a healthy and prosperous

company. Under Armour appears that they will continue their success in the

upcoming years.



Notes

       Under Armour was founded in 1996 by Kevin Plank. They entered the

footwear business in June 2006, beginning with the football cleat. In August

2006, Under Armour began the official supplier to the National Football League

for footwear. In November 2007, Under Armour opened its first retail store. By

the end of 2007, the company had more than 17 retail outlet stores. From the

previous accomplishments of Under Armour, it is obvious that the company will

continue to grow as it branches into international markets and continues to gain

market share in the United States.

References/Work Cited

      Reuters Company Research: Under Armour, Inc. (UA)

      Hoover’s: Under Armour, Inc. (UA)

      Standard and Poor’s: Under Armour, Inc. (UA)

      UnderArmour.com – Investor Relations

      Morning Star: Under Armour, Inc. (UA)




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