Under Armour, Inc. (NYSE:UAA) shares are down more than -43.03% this year and recently increased 0.18% or $0.03 to settle at $16.55. Under Armour, Inc. (NYSE:UA), on the other hand, is down -39.53% year to date as of 10/12/2017. It currently trades at $15.22 and has returned 1.26% during the past week.
Under Armour, Inc. (NYSE:UAA) and Under Armour, Inc. (NYSE:UA) are the two most active stocks in the Textile – Apparel Clothing industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect UAA to grow earnings at a 6.50% annual rate over the next 5 years. Comparatively, UA is expected to grow at a 5.00% annual rate. All else equal, UAA’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. EBITDA margin of 10.51% for Under Armour, Inc. (UA).
If there’s one thing investors care more about than earnings, it’s cash flow. UAA’s free cash flow (“FCF”) per share for the trailing twelve months was -0.24. Comparatively, UA’s free cash flow per share was -0.24. On a percent-of-sales basis, UAA’s free cash flow was -2.19% while UA converted -2.19% of its revenues into cash flow. This means that, for a given level of sales, UAA is able to generate more free cash flow for investors.
UAA trades at a forward P/E of 37.44, a P/B of 3.60, and a P/S of 1.40, compared to a forward P/E of 33.09, a P/B of 3.32, for UA. UAA is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. UAA is currently priced at a -14.65% to its one-year price target of 19.39. Comparatively, UA is -23.9% relative to its price target of 20.00. This suggests that UA is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 3.10 for UAA and 3.00 for UA, which implies that analysts are more bullish on the outlook for UAA.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. UAA has a short ratio of 12.74 compared to a short interest of 9.15 for UA. This implies that the market is currently less bearish on the outlook for UA.
Under Armour, Inc. (NYSE:UA) beats Under Armour, Inc. (NYSE:UAA) on a total of 9 of the 14 factors compared between the two stocks. UA is growing fastly and has lower financial risk. In terms of valuation, UA is the cheaper of the two stocks on an earnings, book value and sales basis, UA is more undervalued relative to its price target. Finally, UA has better sentiment signals based on short interest.